Looking Under the Hood of the New Hewlett Packard

So far in 2015, Hewlett Packard (NYSE:HPQ) has shed almost a quarter of its value — but it’s unclear whether that’s a sign that investors are unimpressed by the company’s upcoming split, or if it makes the split (and improved results that management insists are coming) even more important.

For those who forgot, Hewlett Packard announced in October of last year that it will be separating into two different public companies: Hewlett-Packard Enterprise and HP Inc.

Last week, the company officially filed paperwork for the breakup, which is slated for this November.

As the letter to shareholders explained, HP Co. stockholders — who will become stockholders of the printing and personal systems business — will be distributed 100% of the outstanding shares of the new enterprise-focused company.

The point of this move, as expressed in the filing, is to improve each company’s focus, speed and access to capital. Once again, HP Inc. will own and operate the printing and personal systems businesses, including selling ink, notebooks, workstations, tablets and phablets in addition to printing technology.

Meanwhile, Hewlett Packard Enterprise will focus, as the name implies, on information technology — both with regards to optimizing traditional IT and also weaving in all the enterprise buzzwords, like cloud, security, big data and mobile, in service of other buzzwords like data-driven organizations and better workplace productivity.


Issues With the HPQ Split

While that all sound great, it’s a competitive market — which HPQ points out in its “risk factors” section of the filing. “Our major competitors are expanding their product and service offerings with integrated products and solutions; our business-specific competitors are exerting increased competitive pressures in targeted areas and are entering new markets …” and on it goes.

For the cherry on top, many of those competitors are doing those things while actually growing sales and stock price.

Screen Shot 2015-07-05 at 2.10.17 PMClick to Enlarge

In 2014, Hewlett Packard Enterprise revenue totaled $55 billion, with almost half coming from the Enterprise Group, as seen in the graphic below, which was pulled from the recent filing.

While that number sounds pretty impressive, it’s important to note that revenue for the same segment totaled more than $57 billion in 2013 and more than $61 billion in 2012 — so the trend (like HPQ stock) is hardly moving in the right direction.

Things are a bit harder to decipher on the bottom line. The bad news: Net earnings of around $1.6 billion in 2014 represented a nearly 25% decrease from the $2.1 billion (rounded) earned the year before. But the year before that, the enterprise business lost $14.8 billion — so at least HPQ has been turning a profit in the last two years.

So, while HPQ management remains confident about the separation, it’s unclear just how much good the split will do for investors.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/hpq-hewlett-packard-enterprise/.

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