Silicon Valley startups are an older phenomenon than you might have guessed. In fact, they date as far back as the 1930s. Hewlett-Packard Co. (HPQ) was founded in the proverbial Palo Alto, Calif., garage, and advanced from the manufacture of waveform generators to that of proto-computers in the mid-1960s. With an exclusively industrial clientele – the home desktop as we understand it was still years down the road – Hewlett-Packard maintained a thriving corporate business throughout the 1970s. Since then, the company has been among the most acquisitive and largest in existence, modernizing and buying up workstation manufacturers, industrial press producers, management software companies, and more by the dozens. Then again, Hewlett-Packard has also been responsible for some of the most questionable moves in recent corporate history (the company was a featured attraction in Investopedia pieces on the worst acquisitions of all time and the biggest layoffs of same).

HP Buying Spree

Hewlett-Packard has averaged about five major purchases a year, which have ranged from the smart (Scitex Vision) to the awful (Autonomy) to the historic (Compaq). After numerous bouts of downsizing, spinning off, and strategizing, the modern-day Hewlett-Packard would barely be recognizable to its founders. Today the company bills itself as a seller of (in order) printers, laptops, desktops, storage (disks and tape drives), and cloud servers, among other products. Its market is now almost evenly distributed by volume among corporate clients and individual consumers. (For related reading, see: Big-Mover Stocks with More Big Move Potential.)

Stronger Divided?

And then, on October 2014, Hewlett-Packard reconfigured itself yet again. The company announced that it will officially split into two separate entities: Hewlett-Packard Enterprise and HP. As the name indicates, the former will sell high-margin servers and storage to business clients. The latter will be the outlet for consumer products; the printers and PCs that most of us associate the Hewlett-Packard name with. CEO Meg Whitman has chosen to lead the business half rather than the consumer half, leaving investors to read whatever they want into that decision. (For related reading, see: Why IBM Will Go On Forever.)

Tough Decisions

If anyone can restore Hewlett-Packard to the size and influence it enjoyed in the early era of computing and business machines, it ought to be Whitman, who served as CEO of eBay Inc. (EBAY) during its rise from small company to global powerhouse. During Whitman’s tenure at eBay, Hewlett-Packard’s ceo was an underperformer who was forced to resign. She was followed by a guy who fudged expense reports, and he was followed by a guy who presided over a 40% drop in the company’s stock price before being shoved out in less than a year. At that point Hewlett-Packard could have appointed a Kardashian to its top job and not fared much worse. Instead the company managed to secure one of the most respected women in business, who’s willing to take on challenges and make unpopular decisions (just ask any of the 55,000 Hewlett-Packard employees who are about to be laid off in the wake of the split). (For related reading, see: Inside Intel: A Look at the Mega Chipmaker.)

Seven Units

Under Whitman’s direction, Hewlett-Packard has seven divisions for corporate reporting: Personal Systems, Printing, Software, Financial Services, Enterprise Group, Enterprise Services, and Corporate Investments. “Personal Systems” means commercial and consumer personal computers, mostly. The Printing, Software and Financial Services divisions are self-explanatory. Enterprise Group is servers, storage, and networking; as distinguished from Enterprise Services, which is largely consulting. That leaves Corporate Investments, which is HP-speak for research and development.

Rather than analyze each of the seven divisions piece-by-piece, we can learn something just from examining the revenue and expenses numbers that Hewlett-Packard attributes to products and services separately. The company has undergone a decline in general revenue this decade, a trend that has been consistent across the board. The company’s products brought in a mere $72 billion last year, which is down 15% from 2011. If Hewlett-Packard has figured out a way to lower costs (that upcoming saving of 55,000 salaries notwithstanding), they’re not telling the accounting department: for several years, it’s cost a uniform 76-78¢ to generate every dollar of revenue brought in from products. (For related reading, see: How Apple's Fortunes Affect Other Stocks.)

Declining Revenue

Meanwhile, sales of Hewlett-Packard services totaled $39 billion in 2013, which is a 7% decline over the same three-year period. Remarkably, so much so that we had to check the calculations three times, the profit margins are almost identical on the services side of the business. Again, for multiple reporting periods dating back to the late oughts, 76-78¢ of every dollar of service revenue goes to pay costs. Or if you prefer, it’s a 22-24% gross profit margin. For the industry, that’s distressingly low. (For related reading, see: The Key to Apple's Scale? Half a Billion iPhones.)

Half of Hewlett-Packard’s revenue comes from just five different products and services: notebook computers, desktop computers, large servers, technology consulting, and printing supplies (confirming what you might have observed on your trips to Office Depot Inc. (ODP), printer ink really is one of the most expensive substances known to man, costlier per unit than blood plasma). Still, that revenue has been nothing to brag to shareholders about in recent years. Total sales fell $7 billion last year, $8 billion the year before that, and if you could extrapolate these things linearly we’d be 13 years away from Hewlett-Packard not merely giving away their products, but paying people to take them. Net profits were $5.1 billion last year. If you exclude a $20 billion write-off Hewlett-Packard took in 2012 to account for many of those unpleasant acquisitions, 2013’s profits were still the company’s lowest in years; both in raw dollars and with respect to revenue. (For related reading, see: The Time is Right to Buy Hewlett-Packard.)

The Bottom Line

A few years ago, Hewlett-Packard didn’t seem to know what it was. A brash foray into mobile devices started with the purchase of Palm and ended horribly, a $1.2 billion investment that was ultimately mothballed. Around the same time the company combined its PC and printing units, then recanted. The recent news of the company split is indeed shocking – mostly because it’s finally happening, after years of rumors and false starts – but this could be just the kind of jolt Hewlett-Packard needs. By focusing on the right products and services, and assigning the remaining labor efficiently, Hewlett-Packard might once again reclaim its place among America’s most technologically advanced and innovative companies. Maybe even twice. (For related reading, see: Why Cisco Systems is Virtually Unavoidable.)