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Friday, 18 May 2012

HP on More Layoffs!

Hewlett Packard, CEO, Meg Whitman may announce a major layoff with next Wednesday’s earnings call when she also details a company restructuring plan. Whitman could eliminate 30,000 workers out of a total of 325,000 or 9% of the workforce. Whitman is repositioning the company away from PCs as smartphones and tablets displace desktop computers. HP may add to sales, product development and R&D. The New York Times reported the news.

Stop the Bleeding

HP needs innovation to staunch the slide in revenues and profits. Revenues could decline 4% to $122 billion this year from $127 billion in 2011.

Aggressive cost cutting by former CEO Mark Hurd may have disadvantaged the company by reducing products in the pipeline. Then, major acquisitions by Whitman’s immediate predecessor, Leo Apotheker, who was with the firm for less than a year, reduced the cash hoard but did not contribute to financial performance and earnings fell sharply. HP spent $40 billion in acquisitions over four years, but was not able to monetize them.

HP has mature product lines in decline. It dominates in PCs that face dwindling demand, margin pressure and intense competition from Asian suppliers. HP also dominates in printers, which generate cash but are fading. About 75% the services business is tied to printers, so that baby goes out with the bathwater. HP may combine the PC and printer units. HP does not play in smart phones and tablets.

Cheap and Getting Cheaper

HP has the lowest valuation of the large cap technology companies. Competitors Cisco, IBM and Oracle have market capitalizations of about 2.3 times revenues, but HP’s market cap is one-fourth its revenues. HP invests less in R&D than its rivals. On the average, Cisco, IBM and Oracle invest about 9% of revenues in R&D while HP invests 2%.

Unlike its competitors that have a vertical integration strategy, HP partners with Microsoft for operating software and with Intel for processors. Investors do not consider Microsoft and Intel to be innovators. Because HP does not control all the processes, it is slow to adopt new technologies. More than a decade ago, HP announced a vision to integrate all the entertainment devices in the home, including the PC and TV. But Apple made the vision a reality, not HP.

Tough Competition

In the consumer market, Apple and Google have the majority of share in smartphones and tablets. Apple leveraged  its iOS operating system that allows devices to synch up and interplay to lock customers into the brand. Apple controls the software, microprocessor design and manufacturing. The vertical integration allows it to beat rivals with advanced technologies.

Competitors have blocked the enterprise too. IBM trumped HP in consulting, security and systems management. Oracle beat HP in software, like big data, storage and analytics. And, Cisco controls networking and cloud gear. What is left?

About her plans, Whitman said in BusinessWeek in March that “We need to move quickly to capture emerging opportunities in areas like cloud, security, and information management,” Whitman continued. “We’ve already assembled some formidable assets. Now we need to align our portfolio to deliver a new generation of capabilities. We see a once-in-a-generation chance to define the future of technology and position HP as a leader for decades to come.”

Susan KallaBy Susan Kalla, Forbes Contributor

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