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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 Zingam on 5/19/2012 5:16:52 AM , Rating: 0
After American were so happy to "defeat" socialism more than 20 years ago... Now Americans start to reinvent socialism for themselves.... What an irony, isn't it?

RE: well
By knutjb on 5/19/2012 3:40:34 PM , Rating: 3
We defeated COMMUNISM not Socialism. Communism failed by propping up unprofitable products through central planning. When any government central planning agency tries to soften the blow of failure the government will eventually fail. Our open economy was able to handle the high government spending because weak companies were weeded out. Now we have the return of PROGRESSIVISM which was strong about 100 years ago and is very similar to Communism, Marxism, Socialism, Totalitarianism, and Fascism. Back then Woodrow Wilson started expanding the Federal government to a size and scope never before seen. At the end of his term we were as we are now, extremely over extended, just like European Aristocracies then and Social Democracies now. They corrected it by cutting the Federal government by 50%, which led to the greatest peacetime growth in US history.

While I lumped Communism, Marxism, Socialism, Totalitarianism, and Fascism together there are significant differences in how they function. One area they all fail is that they all treat people as purely mathematical functions rather than the emotional beings we are. Those emotions come to light once the “all knowing” government begins to collapse from economic instability inherent in government planning. Government planners rarely are fired for failure.

This becomes relevant because Capitalism succeeds where the others fail by cutting off the dead weight in the economy, just like what HP is doing to survive. Capitalism isn’t perfect but is far more effective and stable in the long run than Communism, Marxism, Socialism, Totalitarianism, and Fascism. Unfortunately we have a government who thinks they know what’s best for the little people. That is a recipe for disaster. People do best when they can fail. No government can prevent failure. Letting failure follow it’s natural course leads to short term pain with greater long term gain. Weak companies must fail. If HP can get its act together, I hope they do, it will continue, otherwise it will be absorbed by a more successful company. No government planning can prevent that.

So no, it isn't ironic. Learn your history.

RE: well
By Jedi2155 on 5/21/2012 4:58:48 AM , Rating: 2
The cutting of the federal government by 50%. Wasn't that the same time as World War 1? So all the soldiers hired for the war constitute as part of the government? What was the size of the government before his term? Then after?

RE: well
By Nfarce on 5/21/12, Rating: 0
RE: well
By Jedi2155 on 5/21/2012 6:59:10 PM , Rating: 2
None of those were present during the 1910s-1920s. So which government entities were cut during that period?

RE: well
By knutjb on 5/21/2012 10:09:21 PM , Rating: 2
None of those were present during the 1910s-1920s. So which government entities were cut during that period?

Woodrow Wilson is the president who grew the government into a monstrosity during his term 12-20. So nothing was cut, except military pensions. Fascinating reading on Douglas MacArthur.

Harding and Coolidge cut the government after WWI. It was also known as the roaring 20s.

It sounds, reading from your posts, you haven’t read much history. A few more points on Wilson’s tenure; the first movie played in the Whitehouse was Birth of a Nation for which Wilson praised. Several Federal departments were officially segregated. The Federal income tax was implemented not to exceed 6%, it was a little bit higher by 1919. He promised not to enter WWI during his reelection campaign we entered 3 months after his inauguration. He brought in academics, the tweeds, to run his new bureaucracies. Oh, and the massive debt he created.

So as to
The cutting of the federal government by 50%. Wasn't that the same time as World War 1? So all the soldiers hired for the war constitute as part of the government? What was the size of the government before his term? Then after?
Apples to apples takes a little too much time for this venue, try reading it yourself.

"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer

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