In the face of IBM’s breakup later this year I want to look at how HP’s disaggregated businesses have done after its decision to do the same back in 2015. In this article I’ll look at the changes in revenues, profit, profitability and headcount before seeing how IBM could learn from what happened. My Figure above shows my the major organizational changes to HP and associated companies with offloads coloured orange and acquisitions, yellow. HP split enterprise and consumer hardware products into HPE and HP Inc. respectively, offloaded its enterprise services business to CSC to create DXC, and gave its software business to Micro Focus.
DXC has subsequently offloaded various US government services in two tranches – firstly to help create Perspecta and more recently it agreed to sell its US State, local and HR services to Veritas Capital. In the process it has raised around $6b. In November 2019 it acquired Virtual Clarity and announced 5 changes in senior executives at the start of 2020; In January 2021 Atos made a bid to buy DXC for $10b.
Micro Focus, as a British supplier, doesn’t report its financial results as regularly as American ones. It took on all of HP’s ‘non-core’ software portfolio in 2016 in a deal worth $8.8b, which HP took as a 50.1% share in Micro Focus. In 2019 it sold off its popular SUSE Linux distribution to EQT Partners for $2.5b.
HP Inc. bought Samsung’s printer business in 2016, Apogee (an office equipment dealer) for £360m in 2018 and end-point security startup Bromium in 2019. However it has been less involved in M&A activity than the other disaggregated companies and managed to ward off Xerox’s bid for the company in 2020.
HP Enterprise has made many acquisitions over the years, the latest of which were Cray in 2019 and SD-WAN supplier Silver Peak in September 2020. It retained its technical services group, which it later renamed PointNext, which differs from DXC in being less people-based, more focused on HPE solutions and products.
The combined revenues of disaggregated HP grew in 2018 to more than HP’s at the time of the split; however they declined in 2019 and look likely to have done the same in 2020 (I show just the year to September in the right-most column in the Figure above). Focusing on a smaller portfolios has not been successful.
There were probably only five suppliers likely to make more than $10b net profit each in 2020. HP’s disaggregated units managed to grow their combined net profits after the split, reaching $7.8b in 2018, but these have been falling since then. Like others these combined companies have suffered from the pandemic’s effect on IT spending in 2020, but it looks likely that they may have made an overall loss.
Profitability (which I take as the proportion net profit takes of net revenues) gives a slightly different perspective on how the disaggregated companies have performed – see my Figure above. It shows that Micro Focus and DXC have fared worse than the two remaining HP companies. In total these companies employ around 100k fewer people than before the split.
I believe the separation of HP into different businesses has been unsuccessful overall; few of the underlying business challenges have been resolved and both Micro Focus and DXC appear to be struggling for reasons beyond the effects of the pandemic. On balance I believe that Dell’s acquisition of EMC to create a much bigger company in 2016 has been a better strategy, although it too is some way off making $10b net profit in a year. I’m somewhat dubious about the potential success of IBM’s decision to split itself later this year…. but the truth will out!