Hewlett-Packard’s split announced Mondayis just at the beginning in a trend of tech companies spinning off parts of their businesses that require different resources.
HP announced it would separate the divisions that make and sell printers and PCs from those that make and sell software and services to corporations. The news comes just after eBay announced it would spin off PayPal.
It’s part of a growing trend that will increase as large tech companies move into enterprise services versus consumer services, and software versus hardware, analysts say.
That raises questions about whether some of the Seattle area’s biggest tech companies are also considering splits.Shareholders have pushed Microsoft to spin off its Xbox division for years and some have suggested Amazon spin out its cloud service business, Amazon Web Services, so it can actually turn a profit.
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Tech companies will continue to spin off their hardware divisions, which require more capitol costs, to focus on high-margin software, said Ankur Kapoor, a partner and analyst with New York antitrust law firmConstantine Cannon.
This isn’t really a new concept, though. IBM, for example, spun Lenovo out of its hardware division a decade ago.
“When it comes to software, the capital costs are not as intensive in moving into adjacent markets,” he said. “Hardware is hugely capital intensive, so some companies want to divest and focus on higher-margin areas.”
Taking a consumer product to market compared to an enterprise product is a different beast, said Tony Kong a director at West Monroe Partners in Seattle.
Separating the two can free up resources to be used more efficiently, he said.
“Just looking at consumer trends, the pace of change far outpaces anything the enterprise market is willing to swallow or adopt,” he said.
We are unlikely to see such splits happen in big Seattle-area companies Microsoft and Amazon — at least for now, analysts agree.
Microsoft is addressing both consumer and enterprise concerns in its core cloud strategy, Kong said.
And Xbox, though it is hardware, is a unique system that has only one main competitor, making it valuable to Microsoft, Kapoor said.
That’s likely why Microsoft CEO Satya Nadella has doubled down on his commitment to the game console. Kapoor said that’s a good move, because although it is hardware, the Xbox is one of the top two players in its space.
Date: October 06, 2014