Old HP sets breakup example for new HP

September 19, 2013

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The old Hewlett-Packard has set a breakup example for the new Hewlett-Packard. Spun off in 1999 with the company’s original testing products and research DNA, Agilent Technologies is considered by Silicon Valley veterans as the “real HP.” It has outperformed its former parent and is now splitting to create yet more value. HP can learn from its progeny.

Some 14 years ago, Agilent was considered the pipsqueak producer of nerdy equipment to help engineers and scientists measure. HP, meanwhile, was at the time expanding into the sexier, fast-growing business of selling PCs and printers.

When Agilent departed, it took a big piece of HP’s soul with it, evidenced in part by the company archivist choosing to go with Agilent. Building instruments like oscilloscopes is all about precision and quality. Once separated, HP lost its way, seeking market share gains in lower-margin machines for the masses instead of specialized, high-end gadgets.

The starkest difference has been in innovation investment. Agilent consistently spends a greater percentage of sales inventing and upgrading. In recent years, it has earmarked about 10 percent of revenue for R&D, or about three times as much as HP. By contrast, a steady march of chief executives has led HP into one disastrous acquisition after another.

Agilent’s path has produced the better results. For one thing, it has kept refocusing, completing four major spinoffs or divestitures since 2005. And since the separation from HP, Agilent investors have seen a 27 percent return on their investment, while its former owner’s have seen about 30 percent of their value vaporize. Agilent’s decision to pursue a split of the cash-generative electronic measurement group from faster-growing life sciences and diagnostics swiftly added over $700 million of value on Thursday. The two smaller companies should be easier to run and attract new shareholders.

HP would benefit even more from a carve-up. It is far more sprawling, harder to manage and faces bigger existential problems given the technological shift well under way. Some parts, such as its software business, could attract a takeover premium. Though HP boss Meg Whitman keeps resisting the idea, perhaps she can be swayed by some of the company’s old genetic markers.

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