HP Enterprise Turns Back the Clock With Yet Another Spin Off
Talk about symbolism.
With Hewlett Packard Enterprise’s (HPE) surprise move to offload its IT services business less than a year after completing the spin off of its PC group, the rapidly shrinking tech company has pretty much reversed two blockbuster acquisitions of yesteryear.
In 2001, HPE, formerly known as Hewlett-Packard, engineered a contentious $25 billion acquisition of Compaq Computer and its PC business in 2001 under then CEO Carly Fiorina. Seven years later, Fiorina’s successor, Mark Hurd, then pushed through a similarly controversial $13 billion deal for services giant Electronic Data Systems.
HPE’s services business, the progeny of EDS, will now be combined with Computer Sciences Corp. (CSC) in a joint venture to be led by CSC chairman and chief executive Mike Lawrie. HP Enterprise CEO Meg Whitman will join the board of the combined business, which will have about $26 billion in annual sales, the two companies said in a statement. HPE and CSC will each own half of the business.
For the second quarter HP enterprise services revenue was down 2% to $4.72 billion compared to $4.8 billion for the year-ago quarter.
News of the deal sent HPE shares up 10% at one point in after hours trading on Tuesday to $17.94 while CSC shares soared 20% to $42.
On the HP Enterprise second quarter earnings call, Whitman reiterated that HP Enterprise’s decision to get smaller and more focused means it can compete better with rivals including Dell and EMC (EMC), which have taken the opposite tack. Dell and EMC are in the process of completing a planned $59 billion blockbuster merger of two business technology giants.
“My view is predicated on the speed of market change. We got smaller and focused on new technology, they got bigger and focused on old technology,” Whitman said. “Both strategies may work, but I like ours better.”
EMC and Dell, of course, would push back on this characterization.
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HP Enterprise’s latest reshuffling reinforces the perception that legacy tech providers are more intent on financial engineering than on products and services. But then again perhaps they have to be.
This is an era in which the market for expensive name-brand hardware is contracting as business customers put more of their work onto shared public cloud infrastructure from Amazon (AMZN), Microsoft (MSFT), or Google (GOOG).
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Those massive cloud providers, in turn, are designing their own data center hardware and having it built by contract manufacturers, not necessarily by the HPEs, IBMs (IBM), and EMCs of the world. It’s a painful bind for the legacy tech powers and is the reason we’re seeing these spin-outs and sell-offs like the one today.