WSJ: HP plans major restructuring Plans restructuring that may split company into at least two public entities. By Steve Lipton and Don Clark, WSJ Interactive Edition March 2, 1999 4:35 AM PT Hewlett-Packard Co., which makes everything from personal computers to medical instruments, is expected to announce a major corporate restructuring that could break up the company into at least two separate publicly traded entities, people familiar with the matter say. A transaction, if completed, could rank as one of the biggest split-ups in corporate history. HP (NYSE:HWP), based in Palo Alto, Calif., wouldn't comment. But people familiar with the matter say the company, which has annual revenue of $47 billion and a stock-market value of over $70 billion, is planning a major announcement after the stock market closes Tuesday. In composite trading Monday on the New York Stock Exchange, HP closed at $65.875, down 56.25 cents. HP, one of Silicon Valley's most storied companies, was founded by engineers Bill Hewlett and David Packard in 1938 in a garage. It began by selling audio oscillators to Walt Disney Studios, and expanded into other technologies. HP was considered one of hottest big technology companies of the early 1990s, brilliantly building up high-volume businesses such as computer printers that once seemed lost to Japan. It remains a leader in large computers, called servers, that use the Unix operating system, as well as personal computers and low-end servers that are based on Intel Corp. chips and Microsoft Corp.'s Windows software. HP also still has large businesses in test equipment, medical instruments and related products. Lately, however, several of HP's cylinders have been misfiring. PCs have produced market-share gains but low profits, due to plunging prices. The company has been late to deliver some servers, resulting in market-share losses to rivals such as Sun Microsystems Inc. and International Business Machines Corp. In its latest quarter, HP said sales of Unix servers fell, while total sales edged up only 1 percent to $11.94 billion. Revenue from test and measurement equipment alone dropped 14 percent, compared with a year earlier. Moves to improve focus In recent years, companies ranging from AT&T Corp. to ITT Corp. to Dun & Bradstreet Corp. and Tenneco Inc. have split up to create newly formed companies focusing on one line of business. The goal of these moves is to increase stockholder value, with the combined stocks of the broken-up companies being worth more than the former parent company's stock. AT&T, for instance, spun off the equipment-making business of AT&T into Lucent Technologies Inc. and carved out the old NCR Corp. into a separately traded company as well. The stock market likes "pure plays," and spinoffs have been used by companies frequently in the 1990s to get rid of weaker businesses and obtain better multiples on newer companies. HP has underperformed the overall stock market significantly. According to Baseline, a New York financial-data concern, shares of HP are up about 17 percent over the past two years, compared with a nearly 56 percent return for the Standard & Poor's 500-stock index. An index of computer-hardware companies returned 137 percent in the same time period, according to Baseline data. Pressure for improvement Lewis E. Platt, HP's chairman and chief executive, has been under pressure to produce better results. Given that situation, Mr. Platt has cut expenses and improved HP's profitability. But he has expressed exasperation with the lack of progress on the company's revenue growth, stating that the first quarter showed "we're not meeting our growth objectives." The company hired the consulting firm McKinsey & Co. to examine strategic alternatives, setting off widespread speculation that some sort of breakup was possible. One obvious possibility is to spin off the company's test and measurement business, which has different growth dynamics from the computer business. But one person close to the company said HP will likely try to stress faster-growing markets, including Internet-related hardware, that could command a premium on Wall Street. "They have to do something dramatic," he said. HP gets about 86 percent of its sales from computer products, with about half of that derived from printers and supplies such as toner. Test and measurement equipment represents about 8% of sales, with medical equipment representing about 3 percent. Kara Swisher contributed to this article. From MAILER-DAEMON@cs.depaul.edu Fri Mar 5 11:03:19 1999