HP Embraces a Nimbler Future By Laying Off 27,000

by , May 24, 2012, 7:49 AM
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After having had a good look at the rambling enterprise she acquired last September -- sort of a corporate McMansion emblematic of a bygone era of build-it-big-and-gaudy –- CEO Meg Whitman is slashing the household staff and recognizing the obvious.

“There are big changes going on, and we have to position ourselves,” she told analysts yesterday while reporting that the company’s net income had fallen 31% over last year’s results in the quarter ending April 30 and that revenue had dropped 3%. 

Actually, there are small and nimble changes going on embodied by smartphones and tablets doing work once performed by desktops and laptops; the cloud instead of printers; social networks instead of closed silos and cheap apps instead of costly software suites. 

“The new systems are cheaper and more flexible, which businesses found appealing in a slow-growing economy,” writes Quentin Hardy in the New York Times. “As for consumers, they have been dazzled by the new devices and abilities of those devices enabled by the cloud.”

The company will lay off about 8% of its workforce -- 27,000 people -- many of them in the U.S., which it projects will save $3 to $3.5 billion annually. That money will be used for building cloud-based businesses, “big data” services and security offerings, it says.

Reactions were mixed. 

Deutsche Bank questioned HP's assertion that the latest cuts will enable the company to reinvest in other key market areas because it "has been restructuring for the past decade," Steve Johnson notes in the San Jose Mercury News.

"H-P's core businesses in a lot of areas are eroding and all the company seems to come up with is [to] cut heads and cut costs," Rob Cihra, an analyst at Evercore Partners, tells the Wall Street Journal.

On the other hand, “this is the first step in the recovery process,” ISI Group analyst Brian Marshall tells Bloomberg’s Aaron Ricadela. “HP is looking like a good place to park some money. Those guys have already been taken behind the woodshed.”

Bernstein Research analyst A. M. Sacconaghi tells Hardy that he expects the changes at the company to “come slowly,” but that’s not necessarily a bad thing. “CEOs who try to transform HP end badly,” he opines. “CEOs who embrace the company, like Hurd and, so far, Whitman, do considerably better.”

Whitman points out that the PC business gained 2% in global market share in the first quarter of the calendar year and that business was improving in China, observes the Financial Times’ Chris Nuttall. “Everything we see in the marketplace says there is demand. There is a [PC] refresh coming potentially around [the release later this year of] Windows 8,” Whitman says.

Nuttall’s begins his coverage with news of a “high-profile casualty” –- Dr. Mike Lynch, who founded and has headed enterprise search company, Autonomy, for which HP shelled out more than $10 billion last October. That deal was put together by the prior CEO, Leo Apotheker, shortly before he was axed. Lynch will be replaced by Bill Veghte, HP's chief strategy officer.

The problems were “not the product ... It’s not the market ... It’s not the competition. This is classic entrepreneurial company scaling challenges –- it’s a whole different ball game,” according to Whitman.

The hed on a Damian Reece piece in the UK’s The Telegraph, however, is not so forgiving: “Hewlett-Packard Can’t Say It Wasn’t Warned About Autonomy -- It Just Chose Not To Listen.” Reece cites several analysts’ warnings about customer dissatisfaction with the product.

Whitman tells the Journal’s Ben Worthen that she is trying “to strike that appropriate balance between the amount of change that is necessary to position HP for the future and the amount of change that the organization can absorb.” 

She was adamant about separating the cost cutting she’s overseeing to that of another predecessor, Mark Hurd, in an interview with Bloomberg’s Ricadela. “This is about fundamental business-process re-engineering.”

If you’re having trouble remembering all the comings, goings, acquisitions, tribulations and sordid accusations that have plagued HP over the decade since it bought Compaq and entered the PC business, check out the handy timeline of developments compiled by the Associated Press.

HP’s results beat Wall Street’s expectations, we should point out, sending its shares up 9% in after-hours trading. Now the tech world will be watching closely to see if the company can meet its new CEO’s expectations for a company that actually “will be much bigger” in the future.

2 comments on "HP Embraces a Nimbler Future By Laying Off 27,000".

  1. Paula Lynn from Who Else Unlimited
    commented on: May 24, 2012 at 11:57 a.m.
    This is an example of difference between business and government. Who is responsible for 27,000 jobs ? HP is a business which is in business to make money for its owners and its employees get a paycheck to work to make the owners money. A government is responsible for all people all the time regardless of income. When a government lends money with the expectation of interest which can be called bailouts, and the money is returned (the money that is returned) with interest, there is a profit. Government investment into teachers, military, etc., etc., does not increase direct financial profits for itself but for the people it governs. Taxes go back to "public service" . It's where it goes gets disputable. But for sure, our government sure dodged an explodable bullet that HP employees are taking in the gut.
  2. Adam Hartung from spark partners
    commented on: May 29, 2012 at 10:31 a.m.
    Not much chance of a recovery at HP following the sort of traditional, tortured logic Meg Whitman is applying. HP has to move fast - really fast - to recover from more than a decade of innovation slashing behaviors begun under Carly Fiorina and the move toward generic products in the PC business. Forbes mag headlined over Memorial Day that a broken HP would not be fixed by an innovation-incompetent Meg Whitman http://onforb.es/KpAXj8

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