So will HP's be a velvet divorce?

Larry Walsh looks at options and disruptions that may emerge from the HP split

News that Hewlett-Packard is breaking into two companies continues to reverberate through the channel. While the ultimate impact on HP partners and customers remains unclear, the new entities will have plenty of options for plying their futures

If David Packard and William Hewlett were alive today, they'd hardly recognise the company they gave birth to in that Palo Alto garage.

They would, however, understand the course Hewlett-Packard is taking with its split into two entities, as it will open numerous new options for growth and create greater levels of agility.

While few fully understand or appreciate the reasons behind HP's decision to spin off its PC and printer division into a separate company and retain its enterprise products, history may prove that CEO Meg Whitman's strategy is about options for maintaining the company's relevancy in the market.

HP is a hydra, a conglomerate. Over the last 20 years, it has morphed from what it once was - an innovation and technology development company - to an amalgamation of acquisitions, including Compaq, Mercury Interactive, EDS, Palm, 3Par, Autonomy, and a series of small and mid-size deals.

The accretion of companies and technologies propelled HP to its position as the world's largest technology company that churned out enterprise and consumer products.

Ultimately, that's why HP has to get small. HP got big and fat. While it's still a market leader in PCs and servers, it is increasingly challenged to move the needle in storage, networking, security, cloud computing, and big data.

And while HP has generated annual revenue of close to $125bn, its profitability has shrunk, followed by declines in sales.

Whitman, installed as CEO in 2011 following the ouster of Leo Apotheker, embarked on a five-year plan to stabilise and restore HP to its former glory without breaking up the company.

In the final days of Apotheker's disastrous reign, he considered spinning off the PC unit, which was generating low profits and seeing revenue decline amid the market transition to mobile devices.

Whitman and her cohorts not only rejected the idea, but said HP would be stronger with the PC unit as it would give the company more buying power with component suppliers.

Keeping PCs and printers seemed logical, except that the market continued to see sales erode.

Today, the market looks very different. PC sales have stabilised. Enterprises are spending money on equipment, but increasingly looking to cloud and advanced resources such as big data for automation and agility.

And HP is watching other companies disrupt its existing operations and future prospects. Part of the reason EMC and HP talked about a merger is to consolidate customers and products, and look forward to a more competitive future.

No matter the rationale for the HP split, it will be hugely disruptive to channel partners. Over the next year, HP will work to untangle its various divisions and channel operations.

Just how the split will play out for partners remains unclear. While HP has many partners that are specialists in servers, storage, networking, and applications, it has many more that also sell PCs and printers.

Needless to say, the split will not be clean or even in the channel.

HP has few answers for channel partners, but did tell us that the new entities will remain committed to the channel and work to create new systems and programs to maintain continuity and productivity in indirect sales.

"Both companies will be committed to the goals behind PartnerOne - simplicity, predictability and profitability," HP told us.

However, the split will open up many new opportunities for HP and its partners.

HP Enterprise could still merge with EMC or acquire VMware, as many have speculated about over the last several months.

HP could be getting small to make the enterprise business more attractive and a merger with EMC more palatable. And, realistically, bringing VMware - as well as RSA Security and the Pivotal cloud business - into the HP Enterprise fold would make the new company look very attractive.

Splitting often proves hugely profitable. HP's stock is up nearly five per cent since the split announcement, as Wall Street appreciates focus over diversity. With increasing stock prices, HP will have greater financial resources to fuel its future ambitions and growth.

That will translate into new products, services and programs that flow through channel partners. Analysts speculate HP Enterprise could go on a spending spree to acquire companies to rapidly expand the business-focused organisation.

Agility will likely come with greater focus. While it's hard to call a $60bn company such as the future HP Enterprise a nimble organisation, it will be far more agile than the current $120bn behemoth.

Focus will give HP Inc and HP Enterprise the ability to develop new products, ensure quality of service in their existing portfolio, and deliver greater support to partners and customers.

HP says it will be a year before the split happens. A lot can happen in the interim.

With Lenovo closing its acquisition of IBM's x86 business and Dell salivating over the uncertainty that the HP news brings, chances are the market will churn harder and faster while HP figures out how to consciously uncouple its business units.

The requisite for HP partners around the world: engage early and often to stay on top of the changes and incorporate what's to come into future business plans.

Larry Walsh is chief analyst, chief executive and president at the 2112 Group