Hewlett-Packard (HP)

Hewlett-Packard, or HP, is one of the founding giants of Silicon Valley and a name once synonymous with technological innovation. Started in a Palo Alto garage in 1939 by Bill Hewlett and Dave Packard, the company grew from making audio oscillators into a global behemoth, pioneering everything from pocket calculators to personal computers and printers. For decades, HP was a blue-chip titan, admired for its engineering prowess and a celebrated management philosophy known as the “HP Way.” However, for a modern investor, the term “Hewlett-Packard” is more complex than it first appears. Following years of strategic missteps and struggles to adapt to the new tech landscape dominated by mobile and cloud computing, the original company ceased to exist in 2015. It was split into two separate, publicly traded entities, a move designed to unlock value by allowing each to pursue a more focused strategy. Therefore, analyzing “HP” today means analyzing two very different companies with distinct challenges and opportunities.

In November 2015, the original Hewlett-Packard Company executed a massive spin-off, cleaving itself in two. This was the culmination of a long period of soul-searching as the massive conglomerate struggled to compete on multiple fronts. The logic was simple: a leaner, more focused company is often a more agile and valuable one. The split resulted in two new entities:

• HP Inc. (NYSE Ticker: HPQ): This is the company most consumers are familiar with. It inherited the personal systems and printing business, essentially the PC and printer divisions. It’s the direct descendant of the business that put a printer in nearly every home and office.
• Hewlett Packard Enterprise (NYSE Ticker: HPE): This company took over the enterprise-focused product and service lines. Its portfolio includes servers, storage, networking hardware, software, and corporate services, targeting large business and government clients.

For investors, this split was a pivotal moment. You could no longer invest in “HP”; you had to choose between HP Inc.'s steady, consumer-facing business and HPE's high-tech, corporate-focused future.

From a value investing standpoint, the story of HP is a masterclass in corporate evolution, the erosion of competitive advantages, and the search for value in mature or transforming industries.

Before the split, many investors saw HP as a classic value trap. The company's stock often looked cheap on paper, but it was grappling with deep-seated problems.

• Eroding Moat: Its once-dominant position in PCs and printers was under constant assault from lower-cost competitors. The rise of smartphones and tablets cannibalized PC sales, while the move to digital documents threatened the lucrative ink business.
• Questionable Acquisitions: A string of expensive acquisitions, most notoriously the $11 billion purchase of British software company Autonomy in 2011, resulted in massive write-downs and destroyed shareholder value.
• Management Turmoil: The company went through several CEOs in a short period, a clear red flag indicating a lack of a coherent long-term strategy.

This era serves as a crucial reminder that a famous brand and a cheap-looking stock price are not enough; investors must analyze the underlying business trajectory and the quality of capital allocation.

The split allows for a much clearer analysis of the two distinct businesses.

HP Inc. is a mature business in low-growth markets. Its investment thesis revolves around generating cash and returning it to shareholders.

• The Business: The core model is a “razor-and-blades” strategy. Printers (the “razors”) are often sold at a low profit or even a loss, while the recurring revenue comes from selling high-margin proprietary ink and toner cartridges (the “blades”). The PC business is a high-volume, low-margin affair driven by cyclical upgrades.
• The Value Angle: HPQ often trades at a low price-to-earnings (P/E) ratio and is known for its aggressive share buyback programs and a healthy dividend yield. For a value investor, the key question is not if the printing business will decline, but how fast. If management can manage the decline gracefully while generating enormous free cash flow (FCF) and returning it to owners, it can be a compelling investment, even in a shrinking industry.

HPE is in a much more dynamic, but also more competitive, field. It's a bet on a successful transformation.

• The Business: HPE sells the “plumbing” of the digital world to big companies. However, this traditional business is being disrupted by the public cloud. Why would a company buy its own servers (from HPE) when it can rent computing power from Amazon Web Services (AWS), Microsoft Azure, or Google Cloud?
• The Value Angle: HPE's strategy is to pivot from selling hardware to providing hybrid cloud solutions “as-a-service.” This is a classic turnaround story. An investor must assess whether HPE's technology and strategy are strong enough to carve out a profitable niche against godzilla-sized competitors. Success could lead to significant upside, but the risks are considerably higher than with HPQ.

The original “HP Way” was a revolutionary corporate culture focused on employee respect, integrity, and contribution. Many analysts believe the decline of this culture coincided with the company's strategic stumbles. It’s a powerful lesson that intangible factors like culture are vital to a company's long-term health and ability to create sustainable value.

Hewlett-Packard is no longer a single investment; it represents two different paths. HP Inc. is a play on a mature, cash-generating business managing a slow, structural decline. Hewlett Packard Enterprise is a turnaround story betting on a pivot to the new world of hybrid cloud computing. Neither company possesses the unbreachable moat of the original HP in its golden age. For investors, the lesson is clear: nostalgia for a great name is no substitute for a cold, hard analysis of the business as it exists today.