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Tim Green

Dell and the HPs: Two Sides of the IT Coin

by Tim Green | Dun & Bradstreet Editor

November 11, 2015 | No Comments »

HP and Dell logosOn November 1, Hewlett-Packard split into two companies: HP Inc. sells printers and PCs, and HP Enterprise offers servers, storage, networking, management software, and services.

With the split, HP goes from one company with more than $100 billion in annual revenue to two companies with about $55 billion in revenue each.

As the HP split became effective, longtime rival Dell moved to buy EMC, a maker of large storage systems and software, in a $67 billion deal — the biggest technology takeover in history. Their combined revenue should top $80 billion a year from products ranging from PCs to large system products to services. (Recent reports indicate the deal might be in trouble because of a $9 billion tax issue.)

HP and Dell, whose sales reps probably see each other coming and going from presentations to potential customers, are seeking seemingly dissimilar remedies to a common problem. In the fast-changing world of IT, PC sales have stagnated while big, expensive integrated hardware and software systems are losing ground to subscription-based “as-a-service” models.

Dell and the two HPs, as well as their other competitors, are looking for ways to stay relevant to customers who need help working with the complexities of cloud computing, Big Data, analytics, and the Internet of Things, not to mention the related security issues.

In 2001 HP took a big leap when it bought Compaq Computer. The deal increased revenue, but also boosted costs and didn’t help the bottom line. Now a drastic step has been taken to break the company down into component parts.

Dell, which made its name and fortune building PCs to order, added more products and services over the years and became a private company two years ago. It wants to get its house in order outside the spotlight of public scrutiny and the tyranny of quarterly expectations. Its big gamble is to add to the billions of dollars in debt it took on in going private so it can buy EMC.

So do we have four companies (the two HPs, Dell, and EMC) headed in different directions? In five or 10 years, will business professors publish case studies comparing their fortunes? Well, I asked a business professor who studies such things, and his answer was maybe not.

Hüseyin Tanriverdi, an associate professor at the McCombs School of Business at the University of Texas at Austin, researches mergers and acquisitions in the IT sector. He said the companies are actually headed in a similar strategic direction, selling a full range of IT products and services.

HP’s decision to split up might give the impression that HP is exiting PCs and printers or enterprise systems. “But it is not,” he said. “It uses HP Inc. to manage the PC/printer position and HP Enterprise to manage the enterprise position.”

Should a customer want to buy PCs and enterprise products, HP Inc. and HP Enterprise can certainly collaborate on a deal, he said. What HP decided was that two companies would be more agile in responding to the dynamic changes in the IT market — even at the cost of running two separate R&D, supply chain, distribution, and marketing organizations.

“By splitting up the PC/Printer and Enterprise businesses, HP signals that each business will gain more agility, pursue its own objectives better, and end up generating more revenues and profits,” Tanriverdi said. “Put differently, HP now expects the sum of the independent profitability of the split-up businesses to be greater than the profitability of the combined businesses.”

Dell, on the other hand, sees strength in offering a full range of products as one entity.

“Even though it will be costly for Dell to integrate the diverse product portfolio of EMC with its own product portfolio, Dell promises to offer end-to-end solutions to the customer with the integrated product portfolio of the two firms,” Tanriverdi said. “Dell probably estimates that the synergies of the combined positions will be much higher than the costs of running the two positions under one roof.”

Dell has decided that as a bigger company the bigger revenue and profits it generates will outweigh whatever higher costs might be involved, he said.

Other companies have taken different routes in responding to the changing IT market. IBM has sold its PC and server businesses and is focusing on cognitive computing. Cisco Systems and Ericsson have entered an extensive strategic partnership to share research and technologies. Several software companies have gone private.

In the end they all have the same goal: Find a way to make money today, and keep making it tomorrow while delivering even newer technologies.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

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