Let the restructuring begin.
For the fiscal second quarter, ending in April, Hewlett Packard’s profit before some
costs fell to 98 cents a share, below analysts’ 91-cent average estimate. However, the sales decline of three percent to
$30.7 billion topped the average
projection of $29.9 billion.
As part of the earnings announcement on Wednesday, HP stated
that it plans a 27,000 workforce reduction (an 8% reduction)
between now and October 2014. This is the
largest payroll purge in its 73-year history.
Annual savings from layoffs, retirements, and other measures, will be
about $3.5 billion annually. The job
cuts and retirements will pare Hewlett-Packard’s workforce to 349,600. Among Whitman’s foci for the coming turnaround,
delivering the “right products, at the right price, at the right time.”
Many of the cuts will come from the enterprise services group, which manages data
centers and provides technology consulting. This group expanded when Hewlett Packard
acquired Electronic Data Systems for $13.2 billion in 2008. Services demand has slowed, and the division’s
profitability has declined amid competition from companies such as
International Business Machines Corp.
"These are
never fun but given where H-P is, these are necessarily to get the company back
on track," Sterne Agee analyst Shaw Wu said. During the reign of Bill Hewlett and Dave Packard,
during one economic lull, employees worked a 4-day workweek with a reduction
in pay to maintain staff. In today’s
environment, even they may have had to go for layoffs.
“This is quite different from the cost-cutting that Mark
Hurd undertook,” Whitman said in an interview. “This
is about fundamental business-process re-engineering.”
Meg Whitman has said the company needs to make its
products and services more competitive and spend more on research and product
development. Under some of her
predecessors, Hurd, for example, R&D suffered as cost cutting was the primary focus. Brian Marshall, an analyst at ISI Group, said
in a research note last month the company ought to spend $4 billion to $5
billion on R&D to compete with IBM and Cisco Systems Inc. in developing new
products. Hewlett Packard had been
spending about $3.2 billion annually.
When Whitman was named CEO in September, HP’s stock was at about $22.80. It closed on Wednesday at $23.03 and had
reached a peak of $29.89 on February 16.
During Whitman’s tenure, NASDAQ has gone up by about 15%. Not a lot can be read into this, however.
A Brief Timeline of
Whitman’s Tenure to Date
- Aug. 18: HP announces it will discontinue its tablet
computer and smartphone products and may sell or spin off its PC division.
- Sept. 23: HP fires Apotheker after just 11 months and
replaces him with Meg Whitman
- Oct. 27: HP says it will keep the PC division after all.
- Dec. 9: HP says that instead of selling its WebOS mobile
system or killing it off, it will make it available as open-source software
that anyone can use and modify freely. HP
says it still plans to develop and support WebOS
- Feb. 22, 2012: Whitman urges investors to be patient and
talks of a "multiyear journey" for a turnaround.
- March 21: HP says it will combine its PC and printers
businesses. The move will save an
unspecified amount of money.
- April 11: Estimates from research groups Gartner and IDC
suggest that HP has regained much of the PC business it had lost during the
period of indecision. Now about those
tablets they sold for $99 when they said that they were thinking of
discontinuing that business….
There will be uncertainty over the next few months as
Whitman and had team decide in more detail where the cuts will be during this
restructuring. About a third of them
will be in the United States. The
analysts will probably in general be positive with the move. Layoffs and reinvesting in R&D is nothing
new. These are typical turnaround Bain
type activities, where both Whitman (and Romney), spent part of their careers.
Nothing has
been said how acquisitions may play a role in the turnaround. While R&D will increase, growth via
acquisition can make sense for certain deals to get into a business or plug a
gap in a product line quickly. Part of Apotheker’s demise was his decision
to (way) overpay for the Autonomy acquisition.
Hewlett Packard had been investing more heavily in security and making
security acquisitions. This will
continue.
When Whitman accepted the CEO position, she moved out of the
“executive offices” and into a cubicle on the floor with other employees. This is more in keeping with the culture that
Bill Hewlett and Dave Packard had for the company. You didn’t see this during
the Carly Fiorina era.
Meg Whitman isn’t getting a huge salary for her
efforts. In a recent filing with the Securities and
Exchange Commission HP wrote that Whitman received a salary of $1, about $16.1
million in stock options, and $372,598 in "other compensation," including
use of the company aircraft.
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