A separated HP will be able to react to market dynamics faster, and be better equipped to seize opportunities.
Giorgio Nebuloni, research manager: data centres at IDC EMEA, points out that HP’s stated goal is to have an increased focus, faster decision-making process, and ultimately different long-term strategies and investment roadmaps for the two business blocks.
“Tellingly, HP Inc (the PC and printer business) is depicted as a stable business with predictable returns and an organic growth pace, while Hewlett-Packard Enterprise will see ‘targeted merger and acquisition activity’,” he says.
“In other words, the enterprise side, which is the one HP aligns most to IDC’s 3rd Platform vision, is the one where IDC expects to see more radical changes and bets on in the future.
“Overall, and despite the trends over the past nine months, we believe the underlying assumption is that HP Inc. is poised to face headwinds in the longer term, while the enterprise part can be boosted by significant growth with the correct investments.”
The move will be significant for EMEA customers, says Chrystelle Labesque, research manager, personal computing at IDC EMEA.
“HP Corp as a whole is currently the largest IT supplier in the EMEA region, with revenue of $41-billion in the latest four fiscal quarters (FY4Q13 to 3Q14) on a total market opportunity of approximately $455-billion (excluding phones, telecom services, and application software), according to recent IDC data.
“HP is currently number one in hardcopy printers (18% revenue share in CY2Q14), servers (36% revenue share), and PCs (22% revenue share) and number two in several other categories such as networking hardware and external storage,” she says.
“Looking at the size of HP, we believe that the immediate impact of the announcement from a business strategy perspective in the region and in the countries in EMEA will be limited, as the different HP divisions already operate on compartmentalised paths both regionally and in the country.
“HP didn’t clarify this, but in the mid-term it would be expected that logistically the two companies will have to be hosted in different office facilities, with separate back-end IT systems etc. Such practical steps do take time and can distract staff from day-to-day duties.”
However, there are the pros and cons of the separation, according to Nebuloni. “Opportunities are mostly strategic, long-term, and include a potentially swifter culture change toward software and services on the enterprise side, without being bound to the volume/product mentality of the broader HP corporation, and realising the growth potential in specific enterprise elements for Wall Street to see — improving stock performance for the enterprise part and potentially providing a deeper money pool for investments and acquisitions.
“Both companies remain huge at $570-billion annual run rates each, but ‘mergers of equals’ or divestitures will become slightly easier to digest,” he adds. “Challenges to the transition will be mostly tactical, mid-term (six to 18 months), and concentrated in the channel, volume, and SMB space.
“HP will have extra work to do to align its massive customer base between client/printing devices and low-end server and storage to keep a coherent approach on discounting and pricing, especially for SMB customers.”
The split is expected to probably lead to some turmoil in the channel. Labesque points out that competitors such as Lenovo and Dell are expected to try to lure smaller resellers and distributors away with a ‘unity’ message.
“On the positive side, HP is in a much better organisational and financial shape these days and has a clearer story for the market,” she says.
“In the two-tier EMEA channel, which the company dominates, having two HPs could go either way: each supplier might weigh less and be less dominant, or it could get more room to focus and grow.
“In the mid-term, we maintain that the split could end up being costly particularly to the volume side of both houses — HP is clearly looking at the longer-term horizon, but a strong acceleration in the value-add segments or in brand new markets (for example 3D printing, big data analytics, etc.) will be needed to prove the move worthwhile.”
