HP Enterprise Spinoff Reflects HP’s Identity Crisis

Remember when Hewlett-Packard was the leading company in Silicon Valley? If not, don’t worry. That was a long time ago.

The company has been spliced and combined so many times that the business that today is called HP Inc. (NYSE: HPQ) has a much lower profile than the storied computer maker that was started by two guys in a Palo Alto, Calif., garage. Hewlett Packard Enterprise (NYSE: HPE), which was spun off from the parent company last year to focus on the enterprise hardware, software and services market, is now struggling with an identity crisis and, in keeping with HP’s recent history, it has responded with another spinoff. Recent news of this latest HP Enterprises spinoff makes you wonder, what has happened to the soul of this company?

HP Enterprise spinoffTo be frank, the soul of Hewlett-Packard has suffered a death by a thousand cuts. While the planned HP Enterprise spinoff of its enterprise services business may make financial sense by releasing one of the business’ weaker performers, it also suggests a company that may not really know what it wants to be, and casts doubt on what form the business will take a year, or five years from now.

Technology Innovation Heats Up

Here’s a very brief recap. HP was founded under the name Hewlett-Packard Co. in 1939 as a maker of what you would now consider rudimentary computing and measuring devices. For several decades, the company grew and thrived as both a hub of computing innovation that also developed popular consumer and business products.

But that stature started to crumble in the late 1990s when the pace of technology innovation accelerated and HP sought to update its image. Agilent Technologies (NYSE: A) was spun off from Hewlett-Packard in 1999 to focus on some of the company’s more geeky measurement products, while Hewlett-Packard focused more on computing. But more reinvention ensued, including a 2002 acquisition of Compaq Computer, and last year, the HP Enterprise spinoff.

HP Enterprise Spinoff Makes Sense

It is reasonable to argue that all of those steps – including the latest HP Enterprise spinoff – make sense, particularly in today’s market where innovation is faster than ever and nimble young startup companies are often the source of the innovation. The enterprise information technology market is massive and warrants its own focus. And when Hewlett Packard Enterprise reported second-quarter results last week, it showed that the services of that business was one of the company’s weaker performers. By spinning off the enterprises services business through a merger with Computer Sciences (NYSE: CSC), HP Enterprise is clearly hoping to build on the recent success it’s had growing the business.

During the second quarter, HP’s total revenues rose by a modest 1%, but it also reported the first revenue increase the business has seen in a while, signaling that things are moving in the right direction. Its GAAP diluted net income rose to 18 cents per share from 16 cents in the year-ago quarter. Enterprise services revenue, by contrast, fell 2% during the quarter.

A Gain, But No Transformation

So, this appears to be a net gain for Hewlett Packard Enterprise. But it won’t necessarily be transformative. As HP and companies like HP Enterprise continue to tweak their business models by spinning off non-core or poorly performing assets, they are further eroding what was once a strong identity and brand that served almost like a seal of approval.

These storied companies face competition at every turn, from other tech giants and startups alike. They need to work to remain competitive. But HP Enterprise has a long road ahead of it as it works to chase the next wave of innovation. Its latest spinoff will make it more nimble, but only incrementally so.

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Published by Wyatt Investment Research at