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Are Two HPs Better Than One?

HP recently announced plans to split into two separate companies. One company will target enterprise customers (data center infrastructures), the other will focus on the client side (consumers). This move has sparked a series of questions among financial and industry analysts alike: What will it mean to customers who currently hold enterprise agreements or other company-wide contracts with HP products and services? HP stated the goal to split the company was to become profitable again, however, very few details were provided around HP's planned execution. "This would not have been possible three years ago," Whitman said, referring to a proposal to spin off PCs in 2011.

Some analysts expressed skepticism about the latest move. Barclays analysts recently noted that the sudden announcement in 2011 was disruptive to HP's sales, its sales force and demand. "If the (latest) decision by HP isn't well communicated or is not well executed, the negative share shifts could be material," they said in a note. (footnote 1)

Also consider Oracle’s investment in R&D on average from 2010-2013 as compared to Hewlett-Packard’s:
Oracle FY12 $5.0B vs. HP FY12 $3.2B:
(footnote 2)

Oracle spent ~12% of revenue into R&D, contrast that with HP, which spent $3.2B/year on average from FY2010-FY2013, constituting a mere 2.6% of revenue.

And that is before this recent split. Will HP still have the same resources to spend on R&D in the future as it does today? With declining revenues for 11 of the past 12 quarters, the same leaders running the same businesses, and no details provided yet to fix their underlying problems, one could ask if this split was to meet the expectations of Wall Street. How exactly is this a win for customers and not just investors? How will HP cross-integrate and innovate now as two separate companies? It was not that long ago when HP touted the combined portfolio of its consumer and enterprise businesses as a competitive differentiator.

In contrast to HP, Oracle is clearly investing in R&D and continuing to innovate with expanded server and hardware offerings with published and committed roadmaps to ultimately SIMPLIFY IT and increase customer value.


Chart 1 source: http://www.oracle.com/us/corporate/investor-relations/index.htm http://www.mercurynews.com/ci_23437659/exclusive-hp-hewlett-packard-slashed-rd-spending-fraction-norms
Chart 2 source: http://www.slideshare.net/Pronq/hp-mobility-perspective-at-hp-world-congress-2014
Footnote 1: http://www.reuters.com/article/2014/10/06/us-hp-restructuring-idUSKCN0HV0U720141006
Footnote 2: http://www.work-bench.com/blog/2014/09/03/analyzing-r&d-and-m&a-activity-by-legacy-tech-vendors/

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