Hewlett Packard goes for radical remake

HEWLETT-PACKARD, one of the biggest names of California's Silicon Valley, announced yesterday that it intends remaking itself. The company, which has recently lagged behind rivals in share performance and profits, announced a radical plan to split itself into two new entities.

One company will retain the main computer and imaging businesses that Hewlett-Packard has become best known for among consumers.

The rest will be spun away to form an entirely new company encompassing its lower profile divisions that manufacture test and measuring equipment.

"We are taking this action to sharpen the strategic focus of our businesses, and improve their agility and responsiveness to customers and partners," said Lewis Platt, the company president, yesterday. Shares in HP rose sharply yesterday in New York after a delayed opening.

After a firecracker period in the early 1990s, when printers in particular drew in revenues, HP has faded. Harsh price competition in the PC market ate into profits and the company's important server division was hurt by rivals Sun Microsystems and IBM.

Meanwhile, HP shares have risen 17 per cent over the past two years, well below many others in the valley.

By announcing the split, the company is following the path trodden by other American leviathans who were also seeking to boost their fortunes. They have included, in recent years, AT&T, which spun off its equipment divisions to form Lucent, as well as ITT Corporation.

No name has yet been chosen for the new measurements and testing devices company. It will operate entirely independently, however, with its own board of directors. Current holders of HP shares will receive shares in both companies, according to a plan approved by directors yesterday.

HP added that it is considering an initial public offering of about 15 per cent of the measurement company's outstanding shares by the end of this year. If it goes ahead, it will be the largest IPO ever taken in Silicon Valley.

HP is a veritable grand-daddy compared with most of its rivals. Founded in a suburban garage in 1938 by Bill Hewlett and David Packard, both electrical engineers, it began life by selling audio oscillators to the Walt Disney Company.

From there, it quickly expanded to produce a variety of high-technology equipment.

The company has annual revenues of $47bn, of which $40bn comes from the computer and imaging businesses.