HP Third-Quarter Forecast Misses Estimate; 27,000 Jobs to Be Cut
Photograph by Mike Fuentes — Bloomberg/Getty Images

Hewlett-Packard to split into two companies

Oct 05, 2014

Technology giant Hewlett-Packard (hpq) plans to break into two listed companies, separating its computer and printer businesses from its faster-growing corporate hardware and services operations.

The move will be executed as a tax-free distribution of shares to the company’s shareholders in 2015. The Palo Alto, Calif., company confirmed its plan Monday morning in a statement. News of the split was first reported by The Wall Street Journal on Sunday.

Hewlett-Packard’s CEO Meg Whitman will lead the enterprise company, and serve as chairman of the PC and printer company. As part of the move, Hewlett-Packard raised the number of its expected layoffs by 5,000 to 55,000. The company had previously said it would cut between 45,000 and 50,000 jobs as part of an ongoing restructuring program.

Speaking to analysts during a conference call Monday, Whitman said a separation was possible today because of the innovation H-P has invested in, and the new leadership team that has been put in place the past few years.

"Three years ago, this company was in a fairly difficult position and we needed to rebuild and we needed to do that as one H-P," she said.

Hewlett-Packard's decision comes less than a week since eBay unveiled a plan to separate its namesake company and its PayPal business, creating two independent publicly-traded companies next year — a separation that activist investor Carl Icahn had long called for.

Investors and company analysts have called for a similar move at Hewlett-Packard, arguing that the company could sell its PC business and focus instead on the more profitable business of selling computer servers, networking and data storage to corporations.

The Journal notes that Hewlett-Packard and its investors had also considered such a move. The company is one of the oldest big technology companies and discussions have taken place to determine how to keep up with younger, more nimble technology players.

"Every 10 to 15 years, there's big tectonic plate changes," Whitman told CNBC. "We're on the cusp of another enormous change. Everything about computing...is changing."

Whitman believes that splitting HP into two separate companies will help each respond more quickly to the shifting industry.

Shares of HP rallied 4.5% as of 10:30 a.m. ET. Shares of eBay also rallied following its decision to split last week. Recent research shows company split-ups — in which shares of new divisions are spun off to shareholders — are good for stockholders, leading to higher stock market returns.

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On Monday evening Fortune’s Pattie Sellers will interview Hewlett-Packard's Whitman at the 2014 Fortune Most Powerful Women Summit held in Laguna Niguel, Calif.

Under Whitman, who joined Hewlett-Packard as CEO in 2011, the 75-year-old technology firm has launched a multi-year restructuring plan designed to halt declining sales by laying off thousands of employees and cutting other costs. Whitman has also tried to move the company into growth sectors such as cloud software, but has struggled to make much headway, the Journal noted.

—Reuters contributed to this report.

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