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March 2, 1999

HP AT CROSSROADS: SPINS OUT MEASUREMENT BUSINESS

By CBR Staff Writer

By William Fellows

Hewlett-Packard Co is splitting into two separate companies and chairman and CEO Lewis Platt is duly falling on his sword for being unable to stimulate revenue growth at the number two computer maker. HP’s $7.6bn test and measurement business – 14% of HP’s total revenue of $47.1bn last year – will get a new name while the computer products group, which includes printers and will continue under the HP brand. Shareholders will hold stock in both companies and industry reports says HP is expected to spin off up to 15% in the measurement business in an IPO. The separation is due to be complete by the middle of next year. It doesn’t foresee any lay-offs. EVP and measurement general manager Ned Barnholt gets the reins as CEO of the unit. Platt will stay on until the separation is complete and a new CEO is found for HP. A committee headed by Sam Ginn plus John Fery, Richard Hackborn and Platt will lead the search. Spinning out the measurement unit maybe a canny move as Wall Street has warmed to other divestitures such as AT&T’s spinning out of Lucent. However as it stands, the under-performing computer systems group remains sheltered behind HP’s biggest single business, its printers and imaging equipment. Splitting out its test and measurement business from the rest of the company will not alone provide HP with the vision it so badly needs. If HP is to compete in computers the logical thing would be to set that part of the business up as a separate concern with its own focused management team and unimpaired vision. A new CEO’s sole challenge would be to square up to the competition – especially from Sun, Dell and IBM – whose businesses are being invigorated by strong management teams cleverly taking advantage of the new internet economy, while HP has stagnated. Instead it will need a leader who has broad commercial and consumer experience. HP told us that under a plan for the company it will reveal on Thursday the various parts of the business will be given more opportunity to go and pursue their own markets. It wanted its computer and printer products to retain use of the Hewlett-Packard brand. HP will reveal a new focus on customers as well as a plan to be able to quickly address new markets. A common criticism is that HP is unable to react quickly to changing market conditions and becomes a net follower of technology trends rather than a net innovator. Thursday will also see HP continue the process of unveiling its new internet image and roll out a new e-commerce strategy. Computer systems chief, Ann Livermore who is seen as Platt’s natural heir is likely to be competing with CEO candidates selected from outside the IT business if HP does the wise thing and, like IBM, looks elsewhere for the help it needs. After all who is eligible? Former wonder boy Rick Belluzzo is now deep in the mire over at Silicon Graphics Inc and nobody has yet been able to prise Ed Zander Sun’s number two, away from the Mountain View company or Ray LANe away from Oracle. Rumors of Platt’s demise had been the subject of Wall Street speculation for a couple of weeks after it became known McKinsey & Co had presented its plan for the new HP to the board. Trading in HP shares was halted during the morning session but resumed after the company moved the announcement up during the day. Shares closed up $2.75 at $68.62.

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