Why HP wants the split to increase its agility in the IT space
Must-know: HP spins off to form two new companies (Part 2 of 9)
HP’s printing business
HP’s (HPQ) PC and printing business contributed ~52% to its consolidated revenues. It earned ~$57.2 billion in revenues in the trailing four quarters. PC accounts for ~ 59% of those revenues. Printing accounted for the remaining 41%.
HP was late realizing the importance of smartphones, tablets, portable devices, and the consumer services behind them. It gave its peers—like Apple iPad (AAPL), Samsung (SSNLF), Amazon Kindle (AMZN), and Google (GOOGL)—room to grow and prosper.
Increased internet penetration and the emergence and rapid adoption of social, mobile, analytics, and cloud (or SMAC) provided an economical route to share snaps and files all around the world. This hampered HP’s printing revenue growth. However, it contributes significantly to bottom line.
The printing business has generated profit for HP’s front office operations. The total growth is expected to be impacted by negative growth in the PC business.
HP’s enterprise declined
HP’s enterprise group, software, and services contributed ~48% to the consolidated revenues. In HP enterprise, the Enterprise Group contributed ~48% of revenues. The Enterprise Services unit contributed ~39%. The HP Software contributed 7% of sales. HP Financial Services contributed the other 6%. HP’s enterprise services division’s revenues reported a 6% year-over-year (or YoY) decline to $5.59 billion.
Increased competition
According to IDC Corp., Lenovo held 20% of the PC market by shipments in 2Q14. It’s followed by HP. HP held 18%. This competition is expected to intensify with Lenovo’s completion of IBM’s server acquisition. According to Neil MacDonald, a Gartner analyst, HP’s breakup will likely free up cash for acquisitions. Despite flat revenue growth, HP earned decent free cash flows in the past.
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