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HP Splits Itself Into Two – What Now?
Hot Picks, Tradeable | 07 October 2014
By: Tradeable
Articles (256)

Hewlett Packard (HP), the 75 year-old company, best known for its PC line, announced that it will now be spilt into two entities, HP Inc. and HP Enterprise. In the immediate aftermath of the announcement, HP’s stock jumped 6.5 percent, ending the trading day 4.7 percent higher at US$36.87 apiece. The stock also experienced one of the highest volumes on Monday, 7 October 2014 as over 55.7 million shares traded hands.

Here’s What We Know…

  • HP will be cleaved in half. HP Inc. will carry on with HP’s personal computer and printing operations, while HP Enterprise will sell HP’s products and services for large companies. These products and services include computer servers, data-storage equipment, software and consulting.
  • HP's Spilt, A look at the new companies

  • HP’s CEO, Meg Whitman was quoted as saying that the breakup would make the new companies more nimble and enable it to invest in products and acquisitions to better address its individual markets.
  • The spilt comes at a time when large global conglomerates are breaking themselves up and spinning off business segments. The near-record pace of this trend seems to stem from investors’ concern that company size is increasingly becoming a negative factor in a globalised economy.

Tradeable’s POV

  • We generally feel that HP Inc is probably living on borrowed time as we witness the slow and steady decline of the PC. In the face of mobile computing, the PC segment has little to no answer. Previous attempts at marketing a HP tablet seemed to have flopped. Thus, we want to focus more on HP Enterprise.
  • HP Enterprise is being referred to as a growth engine. However, we note that revenue in the enterprise portions of HP slipped 3.2 percent in its 9M15 financial report card, as compared to a year before. Earnings from that segment fell 6 percent.
  • HP Enterprise will immediately feel the squeeze from competitors such as Lenovo Group who are aggressively cutting prices. On the other hand, high-end software specialists such as Oracle Corp will continue to guard their turf from HP Enterprise.
  • All is not doom and gloom however as HP Enterprise could benefit from its entry into networking gear that funnels internet traffic. Converged systems or hardware platforms that unite storage, networking and computing could also offer significant boosters to the fledging spin-off.
  • While the corporate spilt of HP might be greeted with some initial confidence, we do not feel very enthusiastic about HP. We are thus moderately positive on this development in the near-term due to initial euphoria around the development and more negative in the medium to longer terms.

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