Better off apart?

Where will HP and Symantec's conclusion that the sum of their parts is greater than the whole leave partners?

If the CRN editorial desk had a pound for every press release that came across our desk claiming that company X's acquisition of company Y was a case of "one and one making three" or the "whole being greater than the sum of its parts", we'd have long since retired.

But now some of the IT industry's biggest empires are applying the reverse logic - a sort of anti-Gestalt theory - by concluding that their constituent pieces are better off apart.

In the past three weeks HP, Symantec and eBay have all announced plans to cleave themselves in twain as they seek to boost shareholder value. But will their respective divorces lead to double the opportunity or just needless upheaval for their channel partners and customers?

Having spent the past three years claiming HP is "better off together", chief executive Meg Whitman announced plans to dismantle the 75-year-old Silicon Valley giant by splitting it into two $57bn-revenue, Fortune 50 companies. The first, which will retain the HP Inc moniker, will focus on PCs and printers and the second, which will be named Hewlett-Packard Enterprise, on enterprise solutions and services.

"The decision to separate into two market-leading companies underscores our commitment to [HP's five-year] turnaround plan," Whitman, who will remain president and chief executive of Hewlett-Packard Enterprise and will become a non-executive chairwoman at HP Inc, said.

"It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders."

Just three days later, in a near-identical move Symantec announced that its board had approved a split into two publicly traded companies, one focusing on security and the other on information management.

Both firms don't expect their break-up to be completed until late 2015 but analysts, competitors and partners were quick to signal their support or opposition to the potential moves and say how they could affect customers, the channel and shareholders.

PARTNERS

HP claimed its impending split will lead to "more focus, flexibility and accountability" for its partners.

However, rivals including Dell were quick to talk up the uncertainty it could cause channel partners. Barring perhaps only Microsoft, HP has the biggest channel in the world and extricating the many partner programmes and incentive schemes could prove a Byzantine task.

"This announcement can best be summed up as a company with an uncertain strategy which will face years of distraction untangling its operations, all while adding complexity and instability for customers and partners," Marius Haas, Dell chief commercial officer and president of Enterprise Solutions, wrote in a letter to Dell partners.

Jarmila Yu, EMEA marketing director at Intermedia, cautioned that as the two vendors break up, "it is vital that they support not only their internal staff through the transition but also their channel partners".

But Yu added: "From the perspective of HP and Symantec's channel partners, big is not always better. It often means ‘complex', ‘difficult to navigate' and ‘slow to respond'. So while the channel will undoubtedly have initial concerns about the impact on day-to-day business, these break-ups could prove very beneficial to the channel. HP and Symantec may well return to their areas of specialisation and offer the focused support and simpler programmes the channel has been asking for."

Martin Hellawell, chairman of Softcat, hailed HP's break-up as "positive news for Softcat and our customers".

Softcat's relationship with HP's Printing and Personal Systems (PPS) group is already completely independent of the relationship it enjoys with the rest of the business, he said. "While we have tried to find synergies between the PPS business and the rest of the company, these have been few and far between," Hellawell (pictured) explained. "Ostensibly we have been dealing with two separate entities so decoupling the companies should not have a major impact on our business or more importantly on our customers."

He added: "Anything that breaks down the size of an organisation without removing value has to be a positive thing. This should make both organisations more focused on their respective businesses and purpose. Both take control over their own destiny and both should become more nimble, agile and easier to deal with as a result."

CUSTOMERS

CEO Meg Whitman claimed the move will benefit customers by allowing HP Enterprise to "accelerate innovation across key next-generation areas of the portfolio ". This means cloud services, big data, security and mobility. HP Inc, on the other hand, will be free to make more targeted investments in technologies such as 3D printing.

"Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market," Whitman said.

Neil Batstone, vice president of global alliance and channels at security vendor AccessData, said the desire to retain industry leadership was the driving force behind the break-up not only of HP and Symantec but also eBay, which announced it is spinning off its PayPal arm into a separate company next year.

"Companies such as HP, Symantec and eBay need to be agile in this rapidly evolving industry," Batstone said. "The break-up of product divisions enables companies to focus on the emerging businesses with high growth potential, gaining competitive advantage and reinforcing industry leadership."

However, carving up each empire will mean more uncertainty for customers, particularly in the case of HP, which is now the subject of renewed acquisition rumours.

HP's trump card before the announcement was its ability to offer customers a full range of technology from a single source, a strategy that also handed it increased buying power on components. Rival Dell claimed HP's U-turn was doomed to failure.

"As a matter of fact, history has proven that spinning off a PC division from a broader IT solution provider has had material negative impact on the remaining lines of business," said Dell's Haas.

"For example, over the past 30 years in the technology industry every vendor that has spun off or sold its PC division has failed to keep a successful server business. Customers want this breadth of technology from a single vendor."

INVESTORS

Investor value will have been top of mind of both HP and Symantec's boards as they took the decision to carve their companies in two; after all, they answer not to customers or partners but to shareholders.

However, some analysts have expressed fears that the inevitable costs associated with turning one company into two will burden HP.

"Both the PPS and enterprise operations have seen declining revenue, and many are likely to question whether independence can change their fortunes," said Arnaud Gagneux, vice president of technology transformation at CCS Insight.

"The cost of the separate marketing, finance and purchasing departments for the two entities will increase HP's spending, and the loss of some economies of scale may affect HP when purchasing components."

HP and Symantec shareholders also appear unconvinced. Despite enjoying a share spike on the day of their respective announcements, both vendors were trading about seven per cent down as CRN went to press.

And it's not only internal issues that will determine shareholder success, with potential interest from suitors for both sides of HP's business providing a further wildcard.

Kate Hanaghan, research director for infrastructure services at analyst TechMarketView, said HP's PC and printer business would now be a credible acquisition target.

"And don't be surprised if a relatively unknown Asian firm opts to pounce," she said.

She also questioned whether all the previously reported rumours around a possible merger between HP and EMC might actually now bear fruit.

"Joining forces with Hewlett-Packard Enterprise is likely to seem a lot more palatable to EMC shareholders now the PC/printer business is off the scene," she suggested.

Cleaved in two: meet the new HP and Symantec

HEWLETT-PACKARD ENTERPRISE
Revenues: $57bn
Core business: Servers, storage, networking
Investment areas: Cloud, mobility, big data
Chief executive: Meg Whitman

HP Inc
Revenues: $57bn
Core business: PCs and printers
Investment areas: 3D printing, MFPs, phablets and tablets
Chief executive: Dion Wiesler

Symantec Security
Revenues: $4.2bn
Total available market by 2018: $38bn
Core business: End-point security, encryption, authentication, DLP, managed security services
Chief executive: Michael Brown

Symantec Information Management
Revenues: $2.5bn
Total available market by 2018: $16bn
Core business: Backup and recovery, archiving, eDiscovery
and storage management
General manager: John Gannon