HP to split
Is this the splitting season? I doubt. So far I have only heard of the intended eBay and PayPal split… and now, HP wants to split into two. If you didn’t hear about the eBay and PayPal intended split, then be informed that on September 30th 2014 the Board of Directors of eBay Inc announced that PayPal will split from eBay:
eBay Inc. [Board of Directors]…has approved a plan to separate the company’s eBay and PayPal businesses into independent publicly traded companies in 2015, subject to customary conditions.
Creating two standalone businesses best positions eBay and PayPal to capitalize on their respective growth opportunities in the rapidly changing global commerce and payments landscape, and is the best path for creating sustainable shareholder value…
“eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets”. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities. “
Although many expect the split to work negatively for the two companies especially for eBay, the share price of the company has been rising since the announcement of the split to reach 52 week time high by rising over 7.5% in market value.
It is therefore not such a bad thing to hear the news that HP also wants to do things as two distinct companies – one company to take care of the PC and Printers and the other one to take care of enterprise hardware and services.
This isn’t the first time talks of a split have swirled around HP. HP toyed with siphoning off its PC division in 2011 after it acquired Autonomy Corp., though the company quickly pulled back on the plan. The firm has seen a restructure under Whitman’s leadership, including the melding of its PC and printer business into one group.
Similar to eBay and PayPal split in which Devin Wenig, president of eBay Marketplaces, will become CEO of new eBay and American Express executive Dan Schulman to become the President and CEO for PayPal post-separation, HP will have Meg Whitman chair the PC and printer business while serving as CEO of the enterprise company as Dion Weisler, current executive vice president of printing and personal systems taking up the title CEO of the PC and Printing company.
The HP split shouldn’t worry anyone if at all. This is because the HP that will be in charge of HP and Printers (which probably affects you directly) will be in a position to make PCs and Printers more efficiently as bureaucracy required to get things done shall have been sliced probably by half. This has the potential of ensuring that future HP PCs and Printers will be of better quality, more durable and even more affordable. The same expectations should be with the enterprise customers.
The split in HP can also make the PCs and Printers division focus more. Since 2012 PC shipments have been declining but in 2014 the shipment registered some improvement but not in the traditional desktop PCs. The Printers are also facing stiff competition from rivals like Samsung who have started to introduce new innovations in the industry (see SMEs to enjoy Tap & Go NFC and Wi-Fi Enabled Printers) thus it is necessary for HP to focus energy on increasing PCs uptakes and strive to remain the leader in the office and home printers market segment.
Earlier this year Meg Whitman announced that by end of this month HP will start venturing into the world of 3D Printers that has been a revolution in manufacturing. Just the other day the first zero gravity printer was sent to space and among other innovative ways of using 3D printers technology, this is an area that can drive revenues for HP; but it will require a clear mind to effectively compete with players like the ARC Group who have had headway in the market. This clear mind can be achieved easily by eliminating unnecessary bureaucracy typical of extra big companies.
Finally the revenues of HP haven’t been doing that good. According to NBCNews:
[HP] has laid off tens of thousands of employees in recent years due to flagging sales as consumers turn to mobile devices to perform basic computing chores. The shift has curbed demand for HP’s desktop and laptop computers, as well as its printers. In its most recent quarter, HP posted revenue of $27.6 billion, up 1 percent at the same time last year. Although only a slight uptick, it marked HP’s first year-over-year gain in quarterly revenue since its fiscal third quarter in 2011.
Thus if HP will manage to focus energy in driving PC and Printers sales separate from enterprise solutions; and also increase sales of enterprise solutions due to specialization effect, then the company can hope to significantly improve the not so good earnings.
The eBay and PayPal split is what could turn out to be bad news especially for eBay. According Yahoo Finance,
eBays shares rose after-hours Wednesday after the company announced second quarter results.
But notice this part:
PayPal continued to be the driving force for eBay, as reported PayPal net total payment with a total revenue grew to $1.9 billion. PayPal payment volume grew 29% with Merchant Services volume up 35%. Despite a security breach in February, eBay’s PayPal gained 4.0 million new active registered accounts to end the quarter at 152 million, up 15%
If PayPal is split from eBay, meaning the financial statements by PayPal will no longer form eBay’s financial reports, then the juicy growth in revenue reported by eBay Inc will most likely dwindle. Then there is pressure from Alibaba that recently raised $21.8 billion during its IPO and later to $25 billion after selling 15% more shares that made it the biggest US IPO in history.
Although Alibaba’s shares also experienced the biggest ever share decline on the first day of trading, Alibaba is still set to give eBay more pressure as PayPal will be out to venture into other lines of businesses hence won’t directly contribute to eBay’s bottom line. Further, according to this article by TechCrunch, “PayPal could also be opening itself up to opportunities with several of eBay’s strong competitors by separating itself from the online marketplace, including world leader Alibaba”.
It’s not just eBay that may suffer from the split, but PayPal can now face stiff competition from guys like Google Wallet or even Apple Pay if eBay decides to integrate these other payment platforms in the ecommerce enterprise. As per the comments seen in the TechCrunch’s article, most eBay customers would prefer to use Google Wallet to PayPal. One such commenter said:
Maybe this means some day we can use Google Wallet or an alternative on eBay… my hatred for PayPal burns with the fury of 1000 suns