Report: Private Equity Firms Call For HP Breakup

HP's high-volume, low-margin PC business, as well as its very profitable printing business, are cited as potential candidates for spinning off, according to private equity firms, Reuters wrote.

Several HP partners, however, downplayed the report, saying the vendor is in a strong position by being able to take advantage of its wide portfolio of products and services.

The private equity firms, including Blackstone Group, Kohlberg Kravis Roberts, and TPG Capital, would like to see HP broken up into multiple units because the company, currently the world's largest IT vendor, is stretched too thin, Reuters wrote.

Investors are pressuring HP and Leo Apotheker, the company's president and CEO, to make a significant change after a couple of quarters of missing Wall Street targets, Reuters wrote.

The equity firms also said that pressure on Apotheker could increase if HP's new webOS platform fails to perform as expected, Reuters wrote.

Should such a break-up occur, HP would be following in the footsteps of rival IBM, which in 2004 sold its PC division to China-based Lenovo. Prior to that, IBM in 2002 spun out its hard drive business, and in 2001 spun out its printer business as Lexmark.

HP shares spiked early in the trading day Thursday as investors mulled the possibility of a breakup of the company, with shares up as high as almost 5 percent before settling at $36.40 a share, up 2.4 percent over its opening.

HP is unlikely to break itself up, said John Convery, executive vice president of vendor relations and marketing at Denali Advanced Integration, a Redmond, Wash.-based solution provider and long-time HP partner.

HP has for years talked about the power of its wide-ranging product portfolio as a strong advantage for the company, Convery said. "We do, too," he said. "When we go into a customer, we may go in with something like a networking solution, but expand into other areas. For instance, we are seeing a lot of growth by selling HP's print management solutions to our existing accounts."

Furthermore, HP is doubling down on partners who sell across its portfolio of porducts, Convery said.

"Customers like one throat to choke," he said. "Also, HP's converged strategy is very important to it. We as VARs can sell the solution, and bring customers real value."

For HP to spin off a business like printers would be a short-sighted move, Convery said. "It wouldn't cut off its nose to spite its face," he said.

Dhruv Gulati, executive vice president at Lilien Systems, a Larkspur, Calif.-based solution provider and long-time HP partner, said he can see how private equity firms would think HP is worth more for its parts than as a whole.

"But operationally, HP is better as a whole," Gulati said. "Just look at its PC business. HP can depend on volume PC sales for better component prices for other products like servers. Or look at HP's software business. It sometimes alreadly looks like a separate business. Spin it off, and it would be more nimble. But as part of HP, it gets the benefit of being part of a large enterprise."

HP, under former president and CEO Mark Hurd, worked very well as a large enterprise, Gulati said. "Under Apotheker, it seems different," he said. "But I'm not sure if its because of leadership or just bad timing."

An HP spokesperson told CRN it cannot comment on rumor or speculation.