Hewlett-Packard Co. HPQ +5.26% on Monday said it plans to separate its personal-computer and printer businesses from its corporate hardware and services operations, the latest attempt by the technology company to improve its fortunes.
The company will make the split through a tax-free distribution of shares to stockholders by November 2015. If the division goes off as planned, it would give rise to two publicly traded companies, each with more than $50 billion in annual revenue.
H-P also boosted the number of its expected layoffs by 5,000 to 55,000, after identifying “incremental opportunities for reductions.” H-P had previously projected its job cuts to be between 45,000 and 50,000, and it already has shed 36,000 employees under the restructuring program as of the end of the most recent quarter.
A number of big companies, including eBay Inc. EBAY -0.77% in tech, have chosen to break up lately, in part because of a belief that operations with different growth profiles are best managed as separate entities. H-P, which has suffered sharp sales declines, sees better long-term potential for its corporate hardware and services business than for its printer and PC unit, said one person familiar with the plan.
Ralph Whitworth, an H-P investor who until recently was its chairman, said about the news in a text message Sunday: “This would be a brilliant move at just the right moment in the turnaround. It would liberate significant trapped value.” As of June, the firm Mr. Whitworth co-founded, Relational Investors LLC, owned a roughly 1.5% stake in the company.
The impending move, first reported Sunday by The Wall Street Journal, set off a round of speculation in the industry about whether the separation could lead to more deal making.
The Journal recently reported that for much of the past year, H-P held talks to merge with data-storage equipment maker EMC Corp. EMC +1.29% , a deal that would have created an industry giant with a market value of roughly $130 billion. Although the talks recently ended, the separation could pave the way for H-P’s corporate hardware and services business to ultimately be combined with EMC, industry observers said.
The planned breakup is one that Palo Alto, Calif.-based H-P and its investors have long contemplated. H-P came close to hiving off its PC operation in 2011, when it announced the ill-fated acquisition of U.K. software company Autonomy Corp. H-P said then that it was exploring a separation of its PC business, only to decide two months later to hold on to it amid pressure from shareholders, which led to the departure of then-Chief Executive Leo Apotheker.
H-P chief Meg Whitman is slated to be chairman of a PC and printer business, while remaining CEO of a separate company selling corporate hardware and services. Associated Press
At that time, current H-P Chief Executive Meg Whitman nixed the idea of spinning off its PC business. “Together we are stronger,” she said then.
Monday, Ms. Whitman gave a glimpse at why she changed her mind about breaking up H-P—and how her leadership helped the company get strong enough to be in a position for a split.
“Three years ago, you will recall this company was in a fairly difficult position,” Ms. Whitman said on a conference call with analysts Monday.
Now, she said rapidly changing technology means focus is better than unity. “Being nimble is the only path to winning,” Ms. Whitman said on the call.
She credited H-P for three years of hard work rebuilding its financial position, improving executive leadership lineup and introducing new products lines in fast-growing areas like “cloud” computing.
“Today was made possible by our turnaround,” Ms. Whitman said. In 2012, the company reorganized itself to combine the PC business with its more profitable printer operation, helping pave the way for the current plan.
Ms. Whitman is slated to be chairman of the PC and printer business, to be known as HP Inc., and CEO of the other company, to be called Hewlett-Packard Enterprise. Current lead independent director Pat Russo will be chairman of the enterprise company, while Dion Weisler, an executive in the PC and printer operation, is to be CEO of that business.
H-P, which affirmed its guidance for the year ending Oct. 31, said it expects per-share earnings of $3.83 to $4.03 for fiscal 2015. The range doesn’t include one-time charges expected to be connected to the separation. Analysts polled by Thomson Reuters were projecting $3.95 a share.
In the 2013 fiscal year ended last October, the Printing and Personal Systems Group, as it is known, reported $55.9 billion in revenue, about half of H-P’s total. Sales for the operation dropped 7.1% amid fierce competition, compared with a 6.7% decline for company revenue as a whole.
Last year, H-P lost its place as the largest PC maker by shipments, slipping to No. 2 behind China’s Lenovo Group Ltd 0992.HK +0.68% , according to industry research firm IDC.
H-P, founded in a garage in Palo Alto 75 years ago, has been undergoing a multiyear restructuring under Ms. Whitman in an effort to stem sales declines. Aside from the PC and printer business, H-P’s revenue comes fromselling services and hardware such as servers and data-storage systems to corporations, along with software and financial services.
H-P’s shares have risen sharply since the beginning of last year, but they remain well below their highs in recent years—and the even loftier levels they reached during the 1990s tech boom. H-P shares increased 2% on Friday to $35.20, giving it a market capitalization of nearly $66 billion.
In response to lower sales and to provide a lift to its shares, H-P has laid off tens of thousands of employees and cut other costs.
Ms. Whitman has sought to push H-P further into growth pockets such as “cloud” software, but the company has struggled to make headway in such areas.
The recent wave of breakups and spinoffs at technology companies and in the wider corporate world has been fueled by the idea that companies with a narrower focus perform better. The moves in many cases have been well-received by shareholders—and sometimes actively sought by them.
Last Tuesday, online-auction pioneer eBay, where Ms. Whitman was once CEO,announced a plan to spin off its PayPal payments-processing unit. Shareholders rewarded eBay’s decision, pushing the company’s shares up about 7.5% that day.
—Shira Ovide and Michael Calia contributed to this article.
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