Hewlett Packard Enterprise Company HPE recently announced that Tsinghua Unigroup’s asset management arm, Unisplendour Corporation Limited (Unis) had received approval from the China Securities Regulatory Commission (CSRC) to go ahead with its previously announced partnership with the tech giant.
Prior to its split on May 21 last year, Hewlett-Packard had planned to sell its 51% stake in Chinese government-backed Tsinghua Holdings for $2.3 billion. The deal is likely to strengthen the company’s balance sheet thereby providing the financial flexibility required for long-term strategic growth initiatives. It also removes the problems for a foreign company doing business in China by giving majority ownership to the Chinese.
The company is now looking forward to close the deal by the end of May 2016 after completing the final administrative processes and regulatory approvals.
Tsinghua Unigroup is a state-funded private equity corporation controlled by Tsinghua University in Beijing. The company is a leading China-based fabless semiconductor company, which creates chipsets for mobile devices and other consumer electronics products supporting 2G, 3G and 4G wireless communications.
The deal will aid HPE’s long-term goal of expanding its footprint in China. According to Meg Whitman, Hewlett-Packard’s chairwoman and chief executive, “The combined company will build upon an extensive and valuable patent portfolio, best-in-class products and customer focus, and Tsinghua’s world-class research capability.”
Further, the partnership will prove beneficial to Chinese consumers as they will have access to a wide variety of innovative and high-quality products from numerous brands at their disposal.
HPE’s Recent Performance
HPE posted its first quarterly numbers on Mar 3, 2016, post the split from Hewlett-Packard Company. The company reported first-quarter fiscal 2016 results wherein both revenues and earnings per share beat the respective Zacks Consensus Estimate. Moreover, Hewlett-Packard Enterprise issued strong earnings guidance for fiscal 2016
Notably, Hewlett-Packard Company split itself into two standalone companies — HP Inc. HPQ and Hewlett-Packard Enterprise — effective Nov 1, 2015.
To Conclude
In Oct 2014, Hewlett-Packard announced that it will split its enterprise-facing hardware and service business, and the consumer-facing computer and printer segments, into two publicly trading companies.
Post-split, Hewlett-Packard Company’s PC and printer business operates under the name HP Inc., while Hewlett-Packard Enterprise offers commercial tech products.
We consider that the parent company’s (Hewlett-Packard Company) initiative to split the business has already started benefiting Hewlett-Packard Enterprise. In our opinion, splitting the businesses has now ensured a customized approach to two different kinds of businesses, which might not have been possible as a single entity.
We believe that the Chinese transaction will provide significant liquidity to HPE thereby helping it acquire aggressively to build its enterprise capabilities in fast-growing areas. Also, we believe that the partnership will support HPE’s expansion in the Chinese market.
Currently, HPE has a Zacks Rank #2 (Buy). Other stocks worth considering in the broader technology sector include Lexmark International Inc. LXK and Rambus Inc. RMBS, both carrying a Zacks Rank #1 (Strong Buy).
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