A 3000 plucked barren of IMAGE never flew
Why HP Financials Should Remain Relevant

HP to cut 27,000 jobs, reports 24% profit dip

ESSN Q2 2012


Hewlett-Packard watched two indicators drop during its latest quarter, and then pushed a third number downward on its own. Company revenues fell 3 percent in HP's Q2 of 2012, while profits dropped 24 percent versus last year's second quarter. So while HP dispensed the sour news of its quarterly report, it also announced it would cut 27,000 jobs over the next two years. That's 8 percent of its workforce, the largest cut since the 10 percent layoff of 2005 when 14,500 jobs went on the block.

The company said it will save up to $3.5 billion yearly by the time these layoffs are complete in October, 2014. HP's current yearly revenue rate is about $120 billion, so the 8 percent job cuts will yield savings of less than 3 percent of revenues. But that $3.5 billion is a chunk of money equal to 40 percent of last year's profits. The company says it will invest in "research and development to drive innovation and differentiation across its core printing and personal systems businesses, as well as emerging areas." HP said the moves are a "multi-year restructuring to fuel innovation and enable investment."

The cutbacks are going to cost HP in the short run, a total of $1.7 billion within the next six months. The last time the company cut back this deeply, it was an enterprise of 144,000 employees. In spite of those 2005 job losses, Hewlett-Packard now employs close to 350,000 people worldwide. CEO Meg Whitman said these cuts "are necessary to improve execution and to fund the long term health of the company."

The enterprise computing operations at HP, which include replacement systems for migrating HP 3000 customers, came in for special mention in the layoff announcement. The company plans to drive some of the saved money into more R&D.

Enterprise Servers, Storage and Networking (ESSN) will invest to accelerate its research and development activities to extend its leading portfolio of servers, storage and networking. Together these assets create a Converged Infrastructure which is the foundation for top client initiatives such as cloudvirtualizationbig data analytics, legacy modernization and social media.

Wall Street analysts were noting that the company beat earnings estimates for the second quarter, a development that can sometimes impress investors. The stock closed at $21.08 just before the restructuring announcement and quarterly results were released. After-hours trading was pushing the stock back above $23. For the first half of fiscal 2012, HP's profits are about half of where they were in 2011.

The last time HP announced a cut this deep in its workforce, it also froze pensions and retiree's medical programs. This year the company is offering an early retirement program to entice some staff to leave.

Business Critical Systems -- the Itanium-based business that's been under siege from Oracle's Fear, Uncertainty and Doubt campaign -- registered another drop of 23 percent in its sales. Overall, the ESSN unit's revenue declined 6 percent year over year. Even Industry Standard Servers revenue was down 6 percent.

After purchasing Autonomy's software operations for $10.2 billion last year, HP Software sales were up 22 percent. It's about a $170 million sales increase. HP will "help improve Autonomy's performance" by replacing Autonomy's founder Mike Lynch with Bill Veghte, HP's chief strategy officer and executive VP of HP Software.