HP sticks to cost-cutting course
December 13, 2006
Hewlett-Packard advised securities analysts this week that the company intends to continue its cost-cutting measures for the foreseeable future. The strategy has paid off handsomely for your vendor, locked in a PC pricing battle with arch-rival Dell and competing hard for Unix system wins against IBM.
Those challenges drive down the price HP can ask for its systems and software. One way HP has kept up its bottom line: pruning off parts of the company, or keeping operations expenditures tamped down.
Travel has been high on the list of lowered HP expenditures since 2003. But in a company of HP's size — more than 90 billion in its fiscal 2006 — there are countless ways to scale back spending. R&D is a traditional savings opportunity, but HP cannot afford to flag behind HP in the development of advanced operating systems in the Unix campground.
HP's admission, if the cost-cutting news can be called that, came as Chief Financial Officer Bob Wayman announced his retirement from the company. Wayman, who's been at HP 37 years — more than half the company's lifespan — was so vital to HP he took the CEO post for about a month in 2005 until HP announced a replacement for ousted CEO Carly Fiornia.
Current CEO Mark Hurd — who on Wednesday was asked by the SEC to explain a sale of HP stock he executed just before HP revealed its spying on reporters and board members — told the analysts there is much more to trim from an HP that could hit $100 billion in sales in 2007.
“We have a lot more cost to take out,” Hurd said. “We are a company that is transforming — we are not a company that is transformed.”
Hurd already is credited with sparking a dramatic turnaround at HP in less than two years at the helm; HP’s stock price has doubled. Beginning in July 2005, HP has cut 15,300 jobs and overhauled its retirement plan, moves aimed at saving $1.9 billion a year.
But Hurd said those steps alone have not made the company as efficient as it could be.
“I wish it were that easy,” he said. “We have more work to do.”
Hurd said that after HP’s $4.5 billion acquisition of software maker Mercury Interactive Corp. this year, the company would likely engage only in “targeted” mergers and acquisitions.
“You should not be expecting us to do huge transactions,” he said.
On Monday, HP agreed to acquire Knightsbridge Solutions Holdings Corp. to bolster its services business. Knightsbridge, which has 700 employees, focuses on information-management services for larger companies. Terms for the purchase of the Chicago-based company weren’t disclosed.
HP Chief Financial Officer Robert Wayman, who announced retirement plans Monday, released the company’s first public forecast for 2008, saying revenue would likely grow 4 percent to 6 percent, to somewhere between $101 billion and $103 billion. Earnings per share should be between $2.78 and $2.98.