Breaking Up is Hard to Do for HP

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A recent report on Hewlett-Packard by UBS Securities, LLC, a UBS AG affiliate, recommends that HP break up into two groups, one for enterprise and another for PCs and printers, in order for the company to realize full value.

According to the USB report, improving operations alone isn’t sufficient for HP to realize its full value. Rather, structural change is required. USB’s analysis indicates that a restructured HP would be worth more than $20 per share. Today, investors get the PC and printer businesses for free, the report notes.

With HP dropping to 13 percent on Oct. 3, Bloomberg reported that Chief Executive Officer Meg Whitman said the company won’t quickly rebound from the slump that has cut sales for four straight quarters and that she won’t spin off the PC business.

The financial company recommends a sell for now as it sees near-term underperformance due to a managerial lack of interest in structural change, and further earnings weakness in HP’s PC and printer business. The report does go on to suggest that it does expect that HP’s value will be unlocked over time thanks to strong leadership in the printer business which is likely a key revenue generator for years to come.

Todd Bradley, executive vice president of Printing and Personal Systems (PPS) at HP, noted that the group is focused on simplifying the business by reducing the number of SKUs in the printing business by 30 percent and the number of platforms in the PC business by 25 percent by the end of 2014, among other measures.

HP is revitalizing its Enterprise System business and is sixth in software. HP’s Enterprise Services business is seen as wanting, according to the USB report. Earlier this month, HP provided details about its turnaround strategy and 2013 Outlook. The company reported that it is on track to deliver on its savings targets and complete the multiyear restructuring (initiated in May) by the end of fiscal 2014.

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