Today, business and general media have been echoing the blockbuster news of the Hewlett Packard announcement indicating that HP desires to split itself into two separate companies. In this posting, we share our initial Supply Chain Matters impressions of this proposed breakup from both a global supply chain and information technology provider perspectives.

According to HP’s announcement, the company’s recently combined personal computer and printer business will split from its corporate hardware and services operations.  The former is proposed to be named HP Inc. and will have Dion Weisler, a current executive in that operation, as its new CEO while the latter will be named Hewlett-Packard Enterprise, and have current HP CEO Meg Whitman at the helm. However, most of HP’s current profits have come from the combined PC and printer side.

Both of the split entities would have an equal portion of upwards of $50 billion in revenues, but the various reports we have been reading indicate that the strategy for HP Inc. will be more about generating cash while HP Enterprise will be positioned for growth in enterprise and cloud computing areas. Reports further indicated that HP management has suggested that the current near $20 billion in outstanding debt may be placed on the HP Inc. unit itself, allowing the Enterprise unit more options in further strategic deals. 

The stated goal for this split is to provide both businesses with a sharper, more focused response to changing customer requirements. We are not all convinced, at this point.  Wall Street interests obviously will have a far different view.The proposed split has been targeted to be completed by the end of fiscal year 2015, subject to regulatory and stockholder approval.

Needless to state, there is no shortage of opinions regarding this significant announcement, especially since Ms. Whitman, three years ago, declared to customers and stockholders that HP will remain a single innovative company.  Since that time, HP has already shed upwards of 36,000 people as a result of various subsequent re-structuring programs with the ultimate goal being a range of between 45,000-50,000 job cuts.  With today’s proposed split announcement, the number is now pegged at 55,000 total job cuts.

In 2011, HP proposed a spinoff of its PC division, an announcement that ultimately led to the short CEO leadership reign of Leo Apotheker. Our Supply Chain Matters perspective at the time was that such a decision would unwind the global supply chain high volume leverage benefits that HP had garnered in the strategic procurement of hardware components, as well as raise yet another round of uncertainty for HP’s customers and supply chain partners. That view was later reinforced in a Wall Street Journal report published after our commentary.

The same concern remains with today’s announcement, although the combination of PC’s and printers retains some leverage. To calm such fears, we read one report stating that CEO Whitman has indicated that the two companies will have a “supply chain arrangement” that allows them to jointly negotiate strategic purchases. We are not that confident that such an arrangement has been all that successful among other large firms. Further, if one of the entities is burdened with the current total debt load that may not help in negotiating or consummating long-term, multi-year supplier agreements that often require up-front cash. Today, overall supply chain leadership is decentralized among HP’s business units. With this split, that model will have special significance.

In its reporting last week and this weekend, the Wall Street Journal revealed that for most of the year, HP held merger talks with storage systems provider EMC Corp, a deal that would have created an estimated $130 billion in combined revenues. Although those talks were reported as ended, the WSJ speculates that today’s proposed split could pave the way for a combination of HP Enterprise and EMC down the road. If that indeed is the strategy being played out, than the global supply chain leverage benefits from a combined HP/EMC, or another existing IT infrastructure hardware provider can buffer some of the loss of global supply chain volume leverage.

From an overall supply chain,B2B business network and applications perspective, the proposed split affords the HP Enterprise entity the opportunity to more aggressively innovate products in cloud-based systems, big-data analytics and decision-making as well as support for IT business process and cloud outsourcing.  That may well depend on what ultimately transpires in further announcements in the coming months.  There is the possibility that HP Enterprise could be adsorbed within another enterprise provider’s business strategy.

These past weeks, there has been speculation that HP’s printer business was in final stages of announcing some breakthrough technology directed at 3D printing applications in manufacturing and other uses. If that product comes to market, our speculation is that it will have dependence on HP Enterprise services. How such applications are apportioned under the proposed split is an obvious concern for HP’s current and future customer base.

Finally, in observing other high profile corporate splits, issues of how corporate-wide business shared services, such as procurement, data centers, B2B business network infrastructure and EDI systems, ERP, business and specialized supply chain focused applications, third-party logistics and online customer fulfillment are split out becomes a task of significant proportions. With so many job cuts that have already occurred to-date, and more expected to come, inherent business process knowledge and dedicated internal resources to shepherd the transition workloads are going to be challenging. With speculation of even more strategic changes down the road, the notion of two split companies that can respond faster to changing customer and market needs could be slowed-down by the need for adaptive business systems.

There is obviously more to come regarding the HP business split and we urge readers to stay tuned for further Supply Chain Matters commentaries and updates.

Bob Ferrari

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