In huge reorganization, Hewlett-Packard plans to split into two companies
By JIM STOMMEN
Healthcare InfoTech Executive Editor
In a gigantic restructuring move that will be one of the biggest corporate split-ups in U.S. history, Hewlett-Packard (HP; Palo Alto, California) earlier this week said it will break itself into two separate companies.
Faced with slowing momentum in its linchpin computer business, HP said Tuesday that it plans to retain its computer, printer and software businesses and spin off its other divisions into a separate, as-yet-unnamed, firm by the first half of next year. The spin-off’s operations also will include HP’s measurement and testing equipment, electronic component, chemical analysis device, and medical products units.
Hewlett-Packard Chairman and CEO Lewis Platt, who is expected to step down in mid-2000 after completion of the spin-off of the new company, said "a lot of people are excited about the possibilities created by these two new companies." Platt said a special committee will look for a CEO to oversee the computing portion of the company, adding that he will continue his duties until a successor is found.
Existing HP stockholders will end up with shares in both companies, and the company is planning an initial public offering of 15% of the shares probably in October which Platt said would be the largest technology IPO in Silicon Valley history.
The reorganization will see HP divesting itself of the measurement and testing equipment businesses on which the firm was founded by Bill Hewlett and David Packard in a Palo Alto garage in 1938.
The units that will make up the new company account ed for about $7.6 billion of Hewlett-Packard’s total $47.1 billion in annual sales in 1998. Ned Barnholt, who has headed the HP division that sells measurement devices to the semiconductor and telecommunications industries, was named to lead the new company. The Medical Products Group’s cardiovascular ultrasound, defibrillator and patient-monitoring devices, which account for only about 3% of overall HP revenues, will play a larger role in the new company, whose emphasis will be on life sciences and communications.
The remaining elements including computing, imaging and printing products represent about 80% of Hewlett-Packard’s existing business, accounting for about $39 billion in annual revenues.
The company said a study of reorganization alternatives was initiated a year ago and began to crystallize in December. The two companies will divide up resources of HP’s corporate laboratory, known as HP Labs. Barnholt said that "it’s important for both companies to have a strong technological foundation."
Platt said the split should help stimulate faster growth in both companies, adding that the action is being taken "to sharpen the strategic focus of our businesses, improve their agility and increase their responsiveness to customers and partners."
HP said the spin-off shouldn’t lead to layoffs. Any reductions in its current work force of about 122,000 employees worldwide are seen as being handled by attrition.
Industry watchers said the decision to break up Hewlett-Packard reflects a falloff in the company’s momentum. Still one of the giants in the computer industry, it has faltered somewhat in that arena recently, particularly in competing with the innovative sales strategies of such PC sector rivals as Dell and Compaq. After the restructuring, the HP that moves forward will have four distinct segments enterprise computing solutions, personal systems, ink-jet printer products and laser-jet solutions.
Platt said the lineup will "preserve what is best about HP, while sharpening our strategic focus."
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