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Hewlett-Packard Plans to Split Into 2 Companies

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TIMES STAFF WRITER

Hewlett-Packard Co., the pioneering technology firm held for decades as the standard for success in Silicon Valley, said Tuesday that it would split into two companies as it comes to grips with faltering momentum in the computer business.

The company’s collegial management style, which prizes both innovation and loyalty, has long been admired throughout corporate America.

But as the firm expanded into increasingly diverse operations, management appeared to lose focus. That was a serious mistake in such a rapidly changing industry as computing, where even well-run companies can see their fortunes suddenly reverse.

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Hewlett Packard said it will retain its computer, printer and software businesses, while spinning off the divisions that make medical products and devices that measure performance in everything from semiconductors to wireless communications.

The spinoff would break away the part of the company that evolved from what the firm’s two legendary founders--Bill Hewlett and David Packard--invented in a Palo Alto garage. Those businesses now account for $7.6 billion of HP’s $47.1 billion in 1998 sales.

Investors had begun to question whether Hewlett-Packard, which has grown into one of the world’s preeminent computer firms, retains the entrepreneurial spirit that propelled it for so long.

The restructuring comes as perhaps belated recognition that Hewlett-Packard was losing focus over its broad base of high-technology businesses.

Such titans as IBM Corp. and AT&T; Corp. made similar discoveries in recent years and acted to spin off businesses.

“It’s all about focus and agility,” HP Chief Executive Lew Platt said in an interview.

“When you look at successful conglomerates, you don’t find them in this industry, where there’s such a strong emphasis on agility and speed.”

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Platt, 57, said he would step down by the middle of next year after what is expected to be the largest-ever Silicon Valley initial stock offering gives 15% of the as-yet-unnamed new company to the public and the rest is distributed to HP shareholders.

HP still is the world’s fourth-largest personal computer company by revenue and the top seller of laser printers, but the company’s earnings fell to $2.9 billion in 1998 from $3.1 billion the year before as it chased Compaq Computer’s low PC prices.

On Tuesday, Ned Barnholt, who has been chief of the division that sells measurement devices to the semiconductor and telecommunications industries, was named to lead the new company.

“Not very many $40-billion-plus companies grow at double-digit rates,” said Barnholt, who also will oversee the medical division that includes ultrasound, defibrillator and patient-monitoring tools.

“We think this increased focus should improve our speed, flexibility and, ultimately, growth in shareholder value.”

Analysts said that the measurement business has a higher profit margin than HP’s computer business, but that the unit was hurt more by the Asian economic decline last year.

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The new company, which hasn’t been valued, will emphasize two high-growth areas: health care and communications, including supplying components and testing systems for fiber-optic and Internet systems.

Hewlett-Packard shares haven’t kept pace with other computer makers in the last year, in part because the company was slow to respond to sales strategies of rivals such as Dell and Compaq.

Dell Chief Executive Michael Dell said HP had responded poorly to the challenge of the direct-sales method that Dell pioneered.

“HP is in perhaps the most challenging position of any of the big companies,” Dell said, because it risks alienating its printer dealers if it moves to sell more computers over the World Wide Web.

On the New York Stock Exchange, HP stock hit $73.50 on Tuesday on the news, but slid back to close up just $2.75 at $68.63, well below its 52-week high of $83.88.

“Lew Platt has been under a lot of pressure to deliver, and he feels like this might be a good swan song for him,” said Lehman Bros. analyst George Elling.

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While Platt has more than tripled the size of HP’s business, industry watchers are divided on his tenure.

“He didn’t have the kind of dynamism to really push a top-rank PC company ahead,” said analyst Roger Kay of International Data Corp. in Framingham, Mass.

“You look at Dell, [Compaq CEO] Eckhard Pfeiffer--they are figureheads, and each in their own way is a dynamo.”

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