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HP Divulged the Details of Its Breakup in Fiscal 2Q15

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Update on HP’s split

On May 21, HP (Hewlett-Packard) announced its fiscal 2Q15 results. In the fiscal 2Q15 earnings call, HP’s (HPQ) CEO Meg Whitman outlined the details of the split. It was announced in October 2014. She stated that HP’s split into two separate companies is expected to be fully achieved by the end of 2015.

After HP’s split, two companies—the PC and printer business and technical services—will be formed. HP’s CFO Catherine Lesjak will be the CFO of the PC and printer business, while Tim Stonesifer will be taking the CFO position of the enterprise company.

One company will be titled “Hewlett-Packard Enterprise.” It will focus on technology—like servers and data center. The other company will be called “HP Inc.” It will focus on printers and personal computers.

In the above chart, you can see that in 2014 20 US corporations announced or completed deals to split themselves up. That’s more than in the last three years combined. HP and eBay (EBAY) are among the companies that announced their decision to split into separate companies in 2014.

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HP’s split involves massive separation costs

HP’s management stated that “The separation remains on track, and the company expects associated dis-synergies of approximately $400 to $450 million.” Management also stated that each company will be the separation costs individually after the split. “Dis-synergy” refers to the separation cost that HP will have to incur during its split.

To learn more about HP’s split, please read Why HP spins off to form two new companies.

Factors that led to HP’s breakup

HP announced its plans to split into two companies in early October 2014. As we know, HP generates the majority of its revenue from the PC market. There was softness in the PC market. Also, there was increased competition as Lenovo completed IBM’s server acquisition. This put HP in a precarious situation.

According to the IDC (International Data Corporation), Lenovo held 20% of the PC market by shipments in 2Q14. It’s followed by HP with an 18% market share.

The emergence and rapid adoption of SMAC (social, mobile, analytics, and cloud) changed the landscape and dynamics of the IT and technology industry. As a result, leading players in the technology space—Oracle (ORCL), IBM (IBM), Intel (INTC), and Microsoft (MSFT)—are forced to alter their business models, devise new strategies, or identify new growth areas to sustain themselves in the market.

Also, HP was slow to adopt the importance of new digital areas like mobile technology and cloud computing.

If you’re bullish about Microsoft, you could consider investing in the PowerShares QQQ Trust, Series 1 (QQQ) that invests about 2.80% of its holdings in Microsoft.

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