September 16, 2015
HP's latest layoffs chop a fresh slice of jobs
A report from HP's semi-annual Analysts Day yesterday included news of an extra round of 30,000 job eliminations. The letters "HP" still appear on the front of many 3000 customer's servers, either on the original 12-year-old or more hardware, or a replacement from the ProLiant or even the Integrity lines. The fate of the enterprise vendor is of differing interest to these groups of migrators and homesteaders.
Some of those customers who've left, or are leaving, will keep an eye on the shrinking headcount. HP means to keep itself healthy by keeping its costs low as it heads into its first split-up year starting this fall.
CEO Meg Whitman told analysts things are still falling in the enterprise services group, an operation that consults, outsources, and manages co-located business servers. Enterprise Services is the unit that grew up around the EDS workforce that HP acquired in 2008. Even back then, HP needed to trim back the job count as part of the acquisition.
In an '08 HP message called Streamlining for Growth the vendor said, "HP intends to implement a restructuring program for the EDS business group that will better align the combined company’s overall structure and efficiency with the operating model that HP has successfully implemented in recent years."
Enterprise Services generates about 40 percent of HP's Enterprise revenues. But the unit hasn't grown recently. Whitman said yesterday, "A big step forward will be if enterprise services can stop shrinking." The unit has posted $4 billion in losses over the last three years.
The game plan for Enterprise Services will sound familiar to an HP 3000 customer: move professional jobs offshore, outside of North America and Europe, to reduce costs. In 1995 the 3000 division opened operations in India, sending database development and other subsystems design into Bangalore. At the time India's pay scale was one-fifth of California's. Lower costs are going to look attractive for the split-off HP Enterprise.The EDS merger added 140,000 positions in 2008. The running total of job eliminations since Whitman took over as CEO, three years later, will be almost 90,000, and the latest cuts are part of the HP split that's now six weeks away. Whitman said last month the company would be done cutting Enterprise operations for the year, but today's slice is a fresh one from the workforce that wants to sell cloud services to enterprises, now that HP's customer-located hardware sales aren't growing.
HP is aiming its Enterprise business at "growing customer share of wallet." That's the part of IT budget HP hopes to win from its customers. It's also a term from finance markets, and just new to IT. Hewlett-Packard made a case for keeping its Enterprise Services business after the Nov. 1 merger, but some rumors floating in the market have the vast unit being cleaned up for a sale.
HP said it expects to take three more years, until the end of its fiscal 2018, to make the Enterprise Services unit cost-competitive. It will increase the number of jobs outside Europe and North America by 50 percent, so by 2018 60 percent of its IT consultants will work from offshore locations.
The cutting goes beyond workforce, including discretionary expenses like travel, datacenter eliminations and consolidations, and reduced procurement budgets. HP had developed a home run strategy up to 2013; the general manager of the Enterprise Services unit said three customers made up 65 percent of operating profits. No single customer represents more than 10 percent of profits today.
But HP continues to make note of wins like landing the largest single deal of the year in the industry. HP's Professional Services were aimed at the largest of its customers throughout the migration push from 2003-2010. Independent companies offering software tools or MPE-focused experts were more likely to be leading a customer onto non-3000 servers.
A series of over-reaching mergers, including Compaq and EDS, came to a halt in 2010 with the $10 billion purchase of Autonomy. Whitman took the helm the next year and has reined in the company's growth aspirations using the old methods. "We haven’t done anything stupid in the past four years, I think you would agree, and we don’t intend to do anything stupid in the future,” she said in the analyst meeting.
A report in the Wall Street Journal quoted an analyst who said HP was working to increase its business in cloud computing, for example, an operation HP expects to grow by 20 yearly for the next three years. But HP's share of the cloud market is slight, compared to Amazon's or even IBM's. In today's report in Fortune, the publication recounted the story of an IBM and an HP rep visiting a major account. As they stood at the elevators, the IBM rep pushed the up button to head for the executive offices. HP's rep, the story went, pushed the down button to head to the IT department in the basement.
Servicing such hardware needs brought HP to the fork in the business road it faces today. The company is proud to report that it leads in market share for Linux systems, x86 server revenues with ProLiant, and "shipped more than 4 servers per minute on average in the 2nd calendar quarter of 2015." But hardware acquisition and replacement is not a growing business in enterprise IT planning. The tigers from the management ranks of Compaq, who took over HP's strategy as the vendor stopped building 3000s, now must find a way forward with enterprise IT business alone. They'll do it with fewer employees. Those who remain from the 3000 division may well be getting a better future on Nov. 1, along with their new hpe.com email addresses.
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