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HP's "solution" appears to be to downsize workforce, rather than pursue new markets

Hewlett-Packard Comp. (HPQ) is the world's top personal computer seller, but the company has appeared lost over the last few years, as it has searched for identity.  From its ill-fated Palm experiment in the mobile market, to its disastrous decision to appoint SAP AG (ETR:SAPreject Léo Apotheker, HP has seemingly created more fires than it has put out.

I. HP Prepares for a Massive "Downsizing"

Now with former eBay, Inc. (EBAY) CEO Meg Whitman at the helm, the company is trying to course correct and return to its core identity as a PC maker.  The New York Times reported late Thursday that Ms. Whitman planned to chop 30,000 jobs next week -- nearly 10 percent of HP's 324,000 person global workforce.

HP reports its earnings next Wednesday and the cuts are expected to be announced then.  A second report from Bloomberg Business Insider pegged the number of expected layoffs slightly lower, at 25,000, which offers an indication that the precise number may be a "game-time decision" of source.  Regardless, the number of layoffs is expected to be large (>20,000) come Wednesday.

Meg Whitman
Meg Whitman reportedly plans to cut around 10 percent of her company's employees.
[Image Source: towleroad]

Comments the NYT's source, "[Whitman] is trying to build a new company.  You can count this as a part of that.”

The electronics giant pulled in $127B USD in 2011, but drew criticism for only posting $7.1B USD in profit, while rivals like Apple, Inc. (AAPL) posted much higher earnings margins.  Part of the issue is thought to be HP failed to go anywhere in potentially lucrative areas such as mobile devices (tablets, smartphones) and cloud computing.

In mobile devices, many of the issues boiled down to HP's decision to pick up a struggling device maker (Palm) and then put little effort into trying to turn it around, and then simply bailing out of the market when the results of its lack of effort hit the metaphorical fan.

In cloud computing, HP has quite a bit of product -- the problem is it's being overlooked.  According to various sources HP has picked the wrong horse in the cloud computing race, betting on ultra-power efficient servers.  Unfortunately, top cloud computing buyers such as, Inc. (AMZN) and Google, Inc. (GOOG) have increasingly prioritized lower prices over higher power efficiency.  As a result HP is seeing Asian competitors who produce cheap commodity cloud servers earning much of the sales it had hoped to capture.

II. Doing More With Less -- a Solution or Just Punting the True Problems?

The layoffs are expected to mostly spare HP's growing Chinese unit, and instead focus on the U.S. and European units.  The cuts are designed to free up cash to invest in restructuring.

The New York Times describes:

Ms. Whitman, who through a spokesman declined to be interviewed, plans to put money into sales technology for things like fast product quotes, customer tracking and servicing, and bill paying. The hope is that the money gained by job cuts will be used for an efficient, better-trained sales force that in turn can generate more cash.

In other words, HP is going to invest in trying to do the same amount of work with a smaller workforce -- a popular move of late in the post-recession U.S. market.  While that approach may indeed improve margins, it may also leave a bad taste in the mouths of some investors that had hoped HP would make more drastic changes to its cloud computing efforts, or invest in resurrecting its dead mobile device lineup.

Punting a football
Some fear HP is punting on its true structural issues. [Image Source: How to Punt a Football]

Another concern is that there's no indication that HP will invest any of the savings in restoring HP Labs to its former glory.  Investors fear that cutbacks to HP Labs, which started during the seemingly prosperous Mark Hurd era, may hurt HP's long-term success prospects.

Long a bastion of electronics industry research, HP Labs has continued to do novel work, such as inventing the memristor -- a long theorized circuit element, which could lead to new cheaper, more power-efficient kinds of storage.  However, the cutbacks have forced the star institution to operate on a shoestring budget, raising questions of whether HP will be able to continue to attract top talent.  The situation is so bad at HP Labs, according to The New York Times, that researchers are forced to use pirated software for their day-to-day work.

There are plenty of questions for HP as it prepares to announce its massive layoffs and restructuring.  HP appears to be choosing the easy answer; an answer many of its corporate colleagues have opted for in the wake of the recession -- cut the workforce, while forcing current employees to work harder and more efficiently.  The question at HP -- as with the other firms who have adopted this approach -- is whether that plan is maintainable as a long-term solution, and whether it really addresses the underlying structural issues that caused the company to go from growing to contracting.

Sources: The New York Times, Bloomberg

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RE: well
By JasonMick on 5/18/2012 6:15:09 PM , Rating: 2
I will agree that there are many many hard working people in America, but what frightens me is when we are hiring and we interview people who are just out of high school/college. We have hired a few lately that stay one day then never come back because the work was too hard, how can sitting at a desk and typing in a few numbers be that hard? One didn't like that she couldn't answer texts when she was working. One complained that counting the number of baby minnows in a cup(usually about 10)was too hard(mind numbingly boring I agree, but difficult?) One even asked if they would be moved up to management in less than two years lol.

Hopefully these younger people will develop better work ethics as they mature, but currently it doesn't look too promising on average. I fear that current school atmospheres are promoting the "you can be anything you want to be" ideas but not adding the "but you must work hard to achieve it" caveat. I grew up around older men that would work until they dropped just to put food on the table and cloths on their family's backs but today you can barely get someone to work overtime even if they were starving.
True, definitely good perspective.

My point wasn't that Americans AREN'T lazy, rather, was just trying to argue that there are lazy people everywhere.

I think technology enables people to be lazy to a greater extent, which is where part of the perception that Americans are lazier may arise.

As you alluded to, in the old days if you didn't work hard, you could quite literally starve.

I think some people will always be lazy and or try to exploit the system.

I think in America people do gravitate towards extremes more, as our society teaches that being "average" is bad. America's society used to respect honest hardworking "everyday joes" like farmers or factory workers, but that has changed dramatically over the last five or six decades. Today those people are looked down upon, by many in America. Just look at terms like "blue collar" -- and the deep weight of condescension they carry.

People don't want to be a beloved neighborhood mechanic -- they want to be Michael Jordan or Bill Gates. Some spend their lives chasing those dreams, working their butts off. Others recognize that they've already failed and then go to opposite extreme, becoming lazy and exploitive.

The lazy find ways to exploit the system to a greater extent (e.g. mothers that have 20 children and are on welfare), while the hard working become workaholics and work much harder than their foreign peers.

Overall I think these opposites balance out, though I'm not quite sure whether we end up behind or ahead versus a country like China. I think a number of the studies and commentaries (see the various ones linked in this thread) are interesting but very subjective and inconclusive. It's really largely speculation to say Chinese on a whole are lazier than Americans or harder working than Americans. I would expect, in reality, they're very SIMILAR to Americans in that they're people too. Particularly given that Chinese society is becoming much more permeated with high-tech products and niceties.

I've personally seen both sides of the coin and could easily give anecdotes that the U.S. was worse or better, but I suspect that in the end we're all the same. As Depeche Mode said, "People are people."

RE: well
By JediJeb on 5/21/2012 2:01:50 PM , Rating: 2
I believe they average out now, but I hope they will continue to average out in the future. If not, then I feel sorry for the future.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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