A rumour is spreading across financial markets that Hewlett-Packard is considering breaking into two separate companies as part of a stunning corporate restructuring move.
Driven by a US newspaper story this morning, the story is gathering credence as brokers and analysts consider the possible reasons and benefits for such a move.
HP has yet to confirm or deny the report, but insiders say an announcement may follow US stock market close today.
The rumour says HP will split into two separate publicly traded companies, a much more significant move than simply dividing into two business units.
If true, it would be the largest corporate restructure ever in the IT industry. For fiscal 1998, HP had revenue of $47.1 billion and a stock market value of more than $70 billion as markets closed yesterday.
Andy Butler, analyst at Gartner Group, said he was aware that HP was planning another major restructuring but said if it was planning a split into two separate trading companies, that would be kept under wraps until the announcement.
A global announcement to staff is planned for this Thursday. The content is not known but it is something usually done only for annual meetings and very major events. The company is definitely planning some major restructuring, said Butler at Gartner, but this would be more like radical surgery.
Martin Hingley, analyst at IDC, said he was shocked by the story, not seeing any obvious cultural split in the company where the dividing line could be drawn.
"HP has a particular style of business - such as related to personal integrity, close customer relationships, quality of engineering - that runs through the whole company. I don't see different cultures there that, if they split, it would be clear how they would do it," he said.
However he pointed out that the upside would be that two smaller, more dynamic companies might be able to compete better with the likes of Sun, Dell and others.
"Smaller, focused companies have tended to do better - Dell's direct relationship marketing is a good example, or Compaq another - than the larger ones, completely outstripping [in their areas] Siemens and IBM who are full range suppliers," he said.
Another telling point, revealed Hingley, is that HP senior executives have been considering the difficulties faced by being a 100,000 people company - a level it is approaching - when companies tend to perform better as vast services conglomerates such as IBM, or as smaller focused companies.
HP has battled over recent times to keep down rising costs as it continues revenue growth rates that, until the last couple of years, have been consistently above 20 per cent since the formation of the company in the 1920s.
Through the 1990s Sun has grabbed market share in the Unix arena while Dell and Compaq have attacked it from the Wintel market. Analysts have criticised HP for lacking focus, particularly as it spreads itself across disparate markets from software to medical equipment. The company recently said it is shipping 40 million 'things' per year.
If the company does split into two, it could help it regain some of the initiative from Sun, IBM, Compaq and Dell, according to Gartner's Butler. But it would be a very radical move for a traditional conservative blue chip company, he said.
"HP's performance has stalled as of late. There is recognition inside HP that they took the eye off the ball and made some tactical errors over the last one to two years...physically breaking into two with separately accountable organisations, different markets and growth dynamics might be one way of getting stronger growth," he said.
Industry experts are suggesting that the most likely split would be between the commodity products units and the business to business units. HP is still not commenting but is likely to do so later today as US stock markets demand answers.
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