More Breakups Ahead for the Tech Industry?

Arthur Cole
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Merger fever tends to grip Wall Street once in a while, but few seem to notice that breakups come in groups as well.

We seem to be in the midst of a separation trend now as news of HP’s decision to split into two companies is followed up by Symantec’s announcement that it, too, will separate along its security and storage lines. The decision was made after company executives determined that each unit needed to follow different paths to profitability: greater cash flow for the security business and increased revenue for storage. Either way, the breakup is expected to produce some hiccups for enterprise customers considering that key software components in the Symantec portfolio overlap the two entities and will need to be “disentangled.”

Already, though, eyes are turning toward other potential splits in the IT industry. Cisco is a top candidate, with analysts noting that its compute, networking, services and other businesses is one of the more extensive collections in the industry and may start to hamper its ability to adapt to rapidly changing market conditions. Add that to an underperforming stock, and it may not be long before the barbarians start to pound on Cisco’s gate. The question that needs answering, however, is whether Cisco is better off selling individual components of the IT infrastructure or integrated, end-to-end platforms.


Speculation is also brewing around Microsoft, which has long puzzled investors with its dual consumer/enterprise structure. If it makes sense for HP to separate along the PC/printer and enterprise/cloud fault line, why shouldn’t Microsoft do the same for its OS/cloud and Xbox/tablet businesses? At the moment, it seems investors are willing to wait and see what new CEO Satya Nadella has up his sleeve, but the company could face the same pressure that Cisco is under, should upcoming results fall short of expectations.

Breaking up a conglomerate makes sense only if two key criteria are met, say Business Insider’s Drake Baer and Richard Feloni. First, it must provide for an opportunity for management to renew its focus on the core business. Synergy across product lines is great, but at some point a complicated structure can lead to wasted effort and confusion as to what piece goes where. Secondly, it has to maximize shareholder value, preferably by separating high-growth businesses from more staid, established lines. Success is not guaranteed, mind you, but at least it allows the moneyed classes to evaluate each business separately and determine their values accordingly.

Of course, even highly experienced technology and business analysts can fall victim to group-think and the herd mentality. If breaking up is the best thing for HP, then it should also work for others in the same sector, no? But the truth is that every case is different, and right now the enterprise industry is in a state of such dramatic change that it is very difficult to gauge the correct strategy from here.

And if past is prologue, the drive to break things up will last only as long as it takes for people to start pining for the good old days when synergy and integration were the order of the day.

Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata, Carpathia and NetMagic.



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