Global supply risks

HP Kicks Off 2016 with a Possible $1 Billion Sale

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The New Year has started with stiff headwinds for HP with news that it is looking to sell its 60.5% shares in Mphasis, the BPO part of the business, for US$1 billion. Let’s take a look at the events leading up to this new development, and the possible impact on HP clients.

In November 2015, HP took the market by storm when it split its enterprise-facing business (hardware and service) and its consumer-facing business (computers and printers) into two separate entities: Hewlett-Packard Enterprise (HPE) and HP Inc. (HPQ), respectively. In a move to focus on areas that will help each new company increase profitability and growth, the decision to split consequently led to mass layoffs (as many as 33,000 workers losing their jobs) and discontinuing several service lines.

The latest news is HPE looking to sell its shares of Mphasis. HP considered this decision two years ago, but the sale process was stalled due to internal reasons. Now, the sale has been made public and potential bidders could include several key players in the market such as Tech Mahindra, Japan’s NEC, and L&T Infotech. Losing such a key part of HP’s business is likely to affect its customers who use Mphasis for their customer support.

But this is only the latest in a series of decisions to discontinue and/or sell service lines. HPE started this trend by selling off its Network Security Business TippingPoint to Trend Micro for US$300 million. This sale was crucial as TippingPoint was HP’s popular next generation intrusion detection system. However, as the company made a decision to focus on partnering in network security instead of owning it, HP can now invest in other areas of its own security portfolio. HPE then went on to discontinue its Helion Public Cloud offering. After years of competing with its cloud counterparts such as Oracle and Amazon, the company has shut its operations and stated that it will refocus on its data centers. Rather than provide its own public cloud infrastructure, the company said it will partner with other providers operating in this space so that its customers can adopt a hybrid approach to IT consumption. Then HP went on to reveal that it is exiting the low-end tablet market amid declining prices and slowing demand. Instead, the company will focus on detachables, hybrids and business tablets at the higher end of the market.

In addition to these service line changes, HPE has also experienced some key executive and governance changes in the organization. Our Supply Wisdom Alert system has recorded a minimum of five important people who have joined and left the company in a very short period of time, which demonstrates high volatility in the company.

The impact of such splits can be quite disruptive. Management level exits, mass layoffs, division of service lines, and shutting down of services can all be detrimental to client operations. In order to manage this type of situation effectively, communication is vital. Establish communication with your supplier, voice your concerns and make sure that you get necessary clarity on the matter. If you are leveraging a particular service from the company that is being shelved, it is imperative that you know all the effects it could have on your business so that you can plan ahead. Evaluate your suppliers’ roadmaps; get engaged with respective teams at your suppliers’ end to get information of any such transition policy that will ensure continued and seamless transfer of business to a new service provider.

Although such splits are most often led by positive intentions such as looking out for newer technologies and services, the outcomes can be unexpected. This highlights the importance of real-time monitoring of all suppliers in order to assess the risks and opportunities that could arise from major changes at a supplier company. A well implemented risk management program and proactive action plan will ensure that you have sufficient time and information to make sounds business decisions.