10 Things You Need To Know About HP's Aug. 1 Operational Split
A New Era Of Innovation
Effective Aug. 1, Hewlett-Packard officially begins operating as two separate independent Fortune 50 companies: Hewlett Packard Enterprise, which will include enterprise systems, storage, services and software, and HP Inc., a PC and printing business including notebooks and workstations.
Although the final break comes on Nov. 1, HP is required by the Securities and Exchange Commission (SEC) to begin operating independently three months before the formal legal separation.
The separation marks a new chapter for one of Silicon Valley's crown jewels -- a company widely admired for technology innovation since being founded 76 years ago in a rented garage in Palo Alto, Calif., by business icons Bill Hewlett and Dave Packard.
Here is a look at what partners need to know now that HP is Hewlett Packard Enterprise and HP Inc.
The Systems Cutover -- The Aug. 1 Shipping Transition Impact
As a result of a system cutover that comes with HP effectively operating as two separate companies on Aug. 1, no orders will be shipped by HP itself for six days from Aug. 1 to Aug. 6.
The six-day "shipping transition" comes with a system cutover set for the weekend of Aug. 1. "Beginning August 1, customers and partners will begin to receive separate invoices from HP Inc. and Hewlett Packard Enterprise," said HP CIO Scott Spradley in an email to CRN. "Customers will be able to get product from partners during this time, even though we are not shipping direct.
Partners said they are well-prepared for the cutover. Future Tech, a Holbrook, N.Y.-based HP partner that provides thousands of HP systems each month to customers, has bought an additional $1 million in HP inventory to assure there are no hiccups in product delivery for its customers. "We have four employees dedicated to ensuring there is no stop in our HP supply chain for customers from order processing to staging and delivery," said Future Tech CEO Bob Venero.
Stoking HP's Innovation Engine
Hewlett-Packard CEO Meg Whitman said the split is destined to produce two faster, more agile and more innovative companies in their respective markets.
"Each of these companies will have strong financial foundations, compelling innovation road maps, sharpened strategic focus and experienced leadership teams," said Whitman in the company's initial registration statement with the SEC. "The separation is intended to, among other things, simplify the organizational structure of each company, facilitating faster decision making. As independent companies, each of Hewlett Packard Enterprise and HP Inc. will be able to focus its capital deployment and investment strategies and implement an appropriate capital structure to meet the needs of its business."
Whitman told partners at The Channel Company's BoB Conference last year she believes they will be able to make more money working with the two independent companies. "I think we are just going to get better and stronger and more important in terms of you growing your business and making money," said Whitman.
A New Look For Hewlett Packard Enterprise
Hewlett Packard Enterprise has new branding and a new logo: a skinny, horizontal teal rectangle over the Hewlett Packard Enterprise name with the two t's in Hewlett connected to represent commitment to partners, customers and employees.
The "simplicity" of the new logo communicates that HP is going to be "easy to do business with and precise in our work, our engineering and our innovation," wrote Whitman in a blog post.
"Our new company will focus on the enterprise, both large and small," said Whitman in an HP Next blog. "We know that what we do is core to the businesses of our customers and partners. We are innovators at heart -- that’s in our DNA. We had to continue to bring forth the practical innovation we’ve always been known for -- the pride we feel in inventing new ways to improve how we live and work."
A More Acquisitive Hewlett Packard Enterprise
Look for Hewlett Packard Enterprise to use its more than $7 billion in cash to make acquisitions. "We will be in a financial position to do M&A, to make more investments in R&D as we streamline our costs even further in ways that will help the company," Whitman told CRN last year.
One sign that Hewlett Packard Enterprise will be on the hunt for acquisitions: Chris Hsu, a former managing director for private equity company KKR, who joined HP a year ago, was named in May as the chief operating officer at Hewlett Packard Enterprise.
HP Enterprise partners said they are looking forward to a faster-moving and sharper-focused enterprise company. "I think great things are going to happen with our partnership only improving," said Mike Strohl, the CEO of Concord, Calif.-based Entisys, No. 227 on the CRN SP500. "I think we are going to see HP move at a pace that the organization previously could never have even come close to. That is exciting for our customer community and it is exciting for us as partners. We know we will be able to bring new value to the table."
A New CEO For HP Inc. Employees
Dion Weisler, who has driven an innovation renaissance as executive vice president of HP's printing and personal systems business, officially steps in as CEO of HP Inc. on Aug. 1.
Weisler, who has led an innovation renaissance that includes HP's revolutionary Sprout immersive computer and Mutli Jet Fusion 3-D printing technology, is promising more technology breakthroughs with HP Inc. on its own.
HP Inc. is making the big innovation investments to make HP Inc. successful for the next 20 to 30 years, Weisler told CRN earlier this year.
Partners, for their part, said they see Weisler as a rock-star CEO who will take HP's PC and printing businesses to new heights.
HP's Supply Chain Remains Intact
Competitors claim that Hewlett Packard Enterprise and HP Inc. will lose supply chain cost efficiencies as a result of the split. But HP CEO Meg Whitman has stressed that a separation agreement will provide HP Inc. and Hewlett Packard Enterprise with the same buying power it has now with major suppliers.
Whitman told CRN earlier this year that competitors' claims that HP will lose buying power with suppliers as a result of the split is patently false. "That is ridiculous if you think about it for more than a minute," she said. "That is not true. Because we will go to those suppliers as one. Think of it as a buying agreement. So we will go to all of the memory suppliers and all of the screen suppliers and plastics suppliers, and utilize our weight in the marketplace as we always have."
A New Era Of Transformational Consulting Channel Incentives
The split is poised to power a new era of consulting-services-based channel incentives for both Hewlett Packard Enterprise and HP Inc.
Hewlett Packard Enterprise, for example, is allowing partners for the first time to sell and deliver transformational consulting engagements based on proven HP services methodology. Hewlett Packard Enterprise rolled out a pilot program around the transformational consulting sales model on May 1, with a formal rollout slated for Nov. 1.
As for HP Inc., the company's HP Partner First program, which is slated to roll out Nov. 1, includes a new Value Track, which is aimed at driving more business around managed print, mobility services and "everything-as-a-service." There also is a new Alliance Track for ISVs and systems integrators looking to bring technology, such as HP Inc.'s Sprout Immersive computing platform or its yet-to-be-released 3-D printing product, to vertical markets.
Whitman said HP is the only vendor that can make the consulting transformation with partners. "This is a big deal," she said of the new partner incentives.
A Leaner And Meaner Hewlett Packard Enterprise And HP Inc.
Each of the two new independent businesses is making deep cuts in order to be more agile with a "simplified organizational structure" following the split.
HP is moving to take $1 billion in costs out of the company, resulting in a $1 billion GAAP charge, as it splits in two. HP CFO Cathie Lesjak said she expects the $1 billion cost savings to offset more than half of the $400 million to $450 million in costs related to starting up the two new companies.
HP also is aiming to take $2 billion in costs out of its beleaguered $22.3 billion enterprise services business.
Whitman, for her part, has said there are "lots of opportunities" to look at further ways to cut costs and operate more efficiently as the company prepares to split in two. "When you tear apart a company that has been built up over many years through acquisitions, through different systems being merged together, it is remarkable what you find," she said.
Still Working Together
Hewlett Packard Enterprise and HP Inc. will still be working together following the split. In fact, the two companies will continue to team on joint bids and will be operating under a shared services transition agreement.
What's more, Hewlett Packard Enterprise CEO Meg Whitman will play a role in both companies as CEO of Hewlett Packard Enterprise and as nonexecutive chairman of HP Inc.
Furthermore, Whitman and HP Inc. CEO Dion Weisler will both still be working out of HP's Palo Alto, Calif., headquarters in separate parts of the campus. "We will be [on] one side of the campus and Hewlett Packard Enterprise will be on the other," said Weisler. "So Meg and I will be kind of seeing each other every day."
Under the transition services agreement, Hewlett Packard Enterprise and HP Inc. will be sharing various services such as "finance, human resources, information technology, marketing, real estate, sales, supply chain, and tax services" for up to 24 months with the majority of services determined on a "cost plus" basis, according to an SEC filing.
Taking The Show On The Road
The next major milestone before the final formal split of the two companies on Nov. 1 is an investor road show in the fall. The road show is aimed at giving HP shareholders a detailed look at the potential upside and downside of the new independent companies.
HP also has scheduled a security analyst meeting for Sept. 15 where Whitman and Weisler will likely provide new financial data on the two companies.
Following the split, HP shareholders will own shares of both HP Inc. and Hewlett Packard Enterprise.
HP has warned in an SEC filing that the combined post-separation value of Hewlett Packard Enterprise and HP Inc. may not "equal or exceed the pre-separation value of HP Co. common stock."
HP also must still receive a favorable ruling with respect to the tax-free nature of the distribution to shareholders. If the deal does not qualify as tax-free for U.S. federal income tax purposes, HP Co., HP Inc. and Hewlett Packard Enterprise could be subject to "significant tax liabilities."