Seminal Moment for Hewlett Packard and Meg Whitman – 27,000 Layoffs Announced

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.

 

http://www.bloomberg.com/news/2012-05-23/hp-third-quarter-forecast-misses-estimate-27-000-jobs-to-be-cut.html

 

http://kensek.blogspot.com/2012/03/meg-whitman-era-at-hewlett-packard-six.html

 

The Meg Whitman Era at Hewlett Packard - Six Months In

March 20 Addendum - Hewlett Packard Meg Whitman plans to combine the computing giant's PC and printing divisions in a major internal overhaul intended to spur combined sales of hardware to customers

The most recent move is intended to reap the synergies of two divisions whose hardware products are often sold side-by-side, said the second source familiar with the plan. (From Reuters)

Sounds like reductions in force ..... No economies of scale in manufacturing. No economies of scale in R&D. Do people need to upgrade their printer when they get the latest and greatest PC or laptop?

Still a B-

Original Post

Meg Whitman has now been CEO of Hewlett-Packard for six months. The scorecard? Probably a B-. It’s virtually impossible to make radical changes in 180 days unless your strategy is slash and burn. And that’s not what HP requires. HP is a $48 billion market cap firm with over 300k employees globally. This will take awhile. Whitman is saying two years.

Threats facing HP Whitman has pointed out include - PC sales are slowing as more people buy smartphones and tablets. The high-profit ink business is slipping as customers store photos on Facebook (or other sites) instead of printing them at home. HP is selling fewer high-end servers after archrival Oracle (ORCL) stopped making software for those systems.

Some immediate decisions needed to be made, quickly, when Whitman accepted the CEO position. She already was on the board. From a perception perspective, Whitman moved top executives out of their offices and into cubicles instead. This rings of the “old HP”, which is a good thing. This wasn’t seen during the Carly Fiorina era!

HP is keeping its $40 billion PC division. However, growth is projected to be in tablets. In this area, Apple has the lead over all other competitors. Tablet sales, driven by sales of Apple’s iPad, grew 274.2% to 63.2 million units last year — most of them iPads, according to tech tracker Canalys. Sales of desktop computers grew 2.3% to 112.4 million units; notebook sales grew 7.5% to 209.6 million units; and netbook sales fell 25.3% to 29.4 million units.

“PCs remain key tools for everything from video editing, music mixing, and spreadsheet crunching to thoughtful missives,” according to James Mouto, general manager for of HP’s personal computer business unit. “And if you’re sending Junior off to college, the first computing product needed for homework is a PC.”

http://www.forbes.com/sites/briancaulfield/2012/03/07/hp-responds-to-apple-your-college-kid-still-needs-a-pc/

WebOS is going open source in September, when Open WebOS 1.0 is scheduled to be released. 500 WebOS employees were let go last September. 275 of the remaining 600 employees were released in late February.

For the stock quants - the stock price is up a little over 7.4% at $24.49 (March 16) since Whitman took the CEO helm. This is far below the 52 week high of $43.28 in March 2011. Competitor Dell is up 24% and the Dow is up 23% over the same period.

HP also has heavily invested in security. This includes acquiring security management company ArcSight for $1.2 billion in 2010. This is also an area Dell has chosen to invest in. Last week they announced that they were purchasing SonicWALL®, Inc. a provider of intelligent network security and data protection solutions. They are acquiring SonicWall from private equity investor firm Thoma Bravo for an estimated price of $1.2 billion.

http://kensek.blogspot.com/2012/03/dell-to-acquire-sonicwall.html

It should be an interesting next 6 months for Whitman as she works with the rest of management to turn HP around. Her salary? $1. Yes, there are incentives and stock options.

http://www.mercurynews.com/business/ci_20201896/whitman-steadies-hp-but-big-challenges-remain

The Meg Whitman Era Begins at Hewlett Packard

There are some great articles in Channelnomics detailing what’s been happening at Hewlett Packard most recently. The “Anatomy of a Meltdown” chronicles the events since mid-August. http://channelnomics.com/2011/09/25/hp-anatomy-meltdown-recovery/ Being in Silicon Valley, you do get more of a sense of the flavor and history of the not so positive transformation of Hewlett Packard, beginning with the hiring of Carly Fiorina (acquired Compaq, wrecked the culture, $45 million parachute). She was followed by Mark Hurd (good eye for the bottom line, and grew the business, around a $20 million parachute). Then Leo Apotheker from SAP (probably the less said, the better), and now Meg Whitman.

Hopefully the Meg Whitman era won’t parallel what happened with Apple when Steve Jobs, recruited Sculley from Pepsi Cola. During the recruitment process, Jobs asked Sculley: "Do you want to spend the rest of your life manufacturing colored water or do you want to change the world?" Scully came to Apple, Jobs got pushed out. Sculley had 10 year tenure and grew revenue from $800 million to $8 billion before he was pushed out (and supposedly never really learned to use a Mac). Nonetheless, the company wasn’t in fantastic shape when he departed. Sculley never bonded with the engineers. Anyone remember the Lisa?

Whitman lacks a technology background. This will be a strike against her at Hewlett Packard. Call it a slight hurdle to overcome.

She made an interesting statement during her first interview with the press upon being named CEO.

"I have run a large company -- not obviously as large as HP, but I have run a very large company," she said. "While I don't have years of experience in an enterprise business, I bought a lot of software. I was one of the largest enterprise customers in Silicon Valley."

"That's like saying, 'I've bought an iPhone, so I can run Apple Inc." said Whitmore at Deutsche Bank.

Whitman joined Hewlett-Packard's board in January following her failed bid to become California's governor last year. During her campaign, she spent roughly $142 million of her own money. Cost per vote for the campaign, $46. That was a relative bargain. Her cost per vote to win the primary was $76 per vote. For a billionaire, Whitman can be just plain folks and seen at south bay restaurants with her significant other on weekends.

Before eBay, Whitman worked as an executive at the toy company Hasbro, the floral service FTD Inc., footwear maker Stride Rite Corp. and Walt Disney Co.

eBay made some acquisitions during Whitman’s tenure. Their acquisition of Skype proved to be an expensive $2.6 billion venture that didn’t pan out.

Whitman has said that a decision on what Hewlett Packard will do with their $40 billion PC division by the end of the year. Perhaps they’ll come to a final decision on the HP TouchPad well before then. I need another one to complete my coaster collection.