HP Splits to Gain Leverage

By Rob Enderle October 07, 2014

HP announced this week that by the end of next year, it will be two equally sized companies - one targeting the big business and the other targeting end users.   At the heart of this announcement is the need for HP to change with the market. And the market has changed massively over the last ten years - catching a number of companies short.  

Let’s talk about why they are doing this and what the result is likely to be.

The Changed Market

Coming into the new century, it was all about large scale and breadth of capability. The Internet was still young, Google was mostly a pipe dream, Amazon an emerging online retailer, and Microsoft was the unbeatable company from the West Coast.   Bigger was also better and the Internet was cool - but not a place where you’d put anything you wanted to keep safe.  Apple was still in the process of going out of business, Samsung mostly built parts for others, and Sony owned consumer electronics.  

A little over a decade later, Google is the unbeatable company, Amazon is challenging IBM in the enterprise, Apple is the top device vendor, and Samsung is the only company really challenging Apple.   Everything changed, someone jumping into a time machine in 2000 and popping out today would think they somehow entered an alternative reality because what happened was simply impossible. 

Companies across the segment have been having “Oh Crap” moments for the last several years and you are seeing a lot of acquisitions, CEO changes, and divestitures as firms adjust to the changed world where Cloud presence and focus are more important than product breadth.  In fact product breadth looks like a competitive disadvantage.  

HP’s Problem

With HP, the most obvious problem was an inability to make critical partnerships.   HP couldn’t partner with any other large scale finished product company because they competed with virtually all of them.  They had to watch firms like Apple, Lenovo, EMC, and even IBM partner with firm after firm while HP couldn’t do the same and they realized that to compete, something had to change. 

Successful partnerships provide leverage because the partner brings their own sales resources to bear which is what creates leverage.  IBM will help Apple sell their products and IBM, in turn, will help Apple giving both firms more reach.  As these partnerships spread it became increasingly clear that HP’s breadth was working against it.  

The Fix

By separating HP into an enterprise group and PC/Printer group, both entities are now free to partner widely and gain the kind of advantages that Apple, Lenovo, EMC, IBM and other, more focused vendors, have been increasingly able to demonstrate.  In addition, the two new companies will be far more focused on their respective target customers. 

You see, as combined divisions, there often is a massive focus on fighting over resources and this fight can distract executives from their more important customer focus - because resource fights between peers in a company, much like family fights within a family, can be massively distracting.   This focus back on each firms’ unique customer set should result in better targeted products over time and a far improved customer satisfaction. 

What’s Coming from HP

Three big things to watch coming from HP are, in the back end, their Moonshot platform - which blends x86 and ARM into something new and amazing in servers and a 3D Printer that prints rapidly and more like a paper printer, out of their printer division.   This last one could quiet literally become the HP Ink’s (the new name for their PC and Printer division) iPod because this would give people a far faster way to print the objects folks want for their homes and cars and give HP a path to industrial scale devices that could be used in low run manufacturing companies.  

Moonshot represents a revolution in servers with the promise of better cost performance and flexibility than anything based on either one of the technologies alone.   There are other wild card products like an HP Smartwatch and a new kind of memory called Memristor which could also make big splashes. 

Wrapping Up:  The Good News for Silicon Valley

Over the years, we have watched different industries fail to evolve and fail in market.  RCA lost consumer electronics and Japan got most of that, Steel went mostly to China, and Automobiles almost failed in the U.S. and Detroit may never fully recover.   Silicon Valley however is showcasing unique resiliency, companies are evolving and changing to assure their own long term survival and from Google, to Apple, and now even HP, the valley is defined by evolutionary efforts which should assure the tech market stays in the U.S. and much of the power remains in Silicon Valley.  HP is just the latest example of this evolutionary progress and the true power of technology in the United States.    

Edited by Stefania Viscusi

President and Principal Analyst, Enderle Group

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