By Steve Johnson, San Jose Mercury News –
SAN JOSE, Calif. — Saying it needed to reduce expenses to reinvigorate its struggling business, Hewlett Packard on Wednesday said it will cut its workforce by 27,000 employees, while reporting a drop in sales and profit for its second quarter.
The cuts, which amount to about 8 percent of the company’s global workforce and will be completed by next year, are to be partly accomplished through an early retirement program, the Palo Alto, Calif., company said. Other expenses will be trimmed by refining its business operations, it said.
“These initiatives build upon our recent organizational realignment, and will further streamline our operations, improve our processes, and remove complexity from our business,” CEO Meg Whitman said in a statement. “While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long-term health of the company. We are setting HP on a path to extend our global leadership and deliver the greatest value to customers and shareholders.”
HP said its sales for the quarter were $30.7 billion, down 3 percent from a year ago. It had a profit of $1.6 billion, down 31 percent from the same period a year ago, which amounted to 80 cents per share.
Analysts surveyed by Thomson-Reuters on average had predicted HP would report sales for the quarter totaling $29.9 billion and earnings of 73 cents per share.
HP has taken an ax to its workforce on several other occasions in recent years. In June 2010, it announced it was cutting about 9,000 positions “over a multiyear period to reinvest for future growth.” Two years earlier, it disclosed a “restructuring program” to eliminate 24,600 employees over three years. And in 2005, it said it was cutting 14,500 workers over the next year and a half.
In a note to its clients this week, Deutsche Bank analysts said past layoffs “have done little to improve HP’s competitive position or reduce its reliance on declining or troubled businesses.” And despite HP’s assertion that the latest cuts will enable the company to reinvest in other key market areas, Deutsche Bank questioned that rationale because the company “has been restructuring for the past decade.”
The Deutsche analysts also worried that HP does a lot of business in Europe and could be vulnerable to the continuing economic turmoil on that continent. They added that HP hasn’t sufficiently invested in some areas, leaving it “poorly positioned for growth” and that “we do not see a quick-fix for any of these issues.”
In another recent note, analysts at Bernstein Research concluded that HP could save $500 million for every 5,000 people laid off, but warned that their biggest concern based on the first quarter “was HP’s apparent lack of competitiveness, as the company grew slower than its rivals across all business units,” including personal computers, servers, laser printers and tech services. While “it is too early to write-off the company,” they added, “investors view HP as a ‘broken’ company.”
More trouble could loom ahead for HP. On Tuesday, Dell reported that the PC market was slowing, which analysts took as a bad sign for other companies in the PC business.
As the world’s biggest personal computer maker, HP remains a formidable technology and commercial powerhouse. However, its sales and profits have slumped as consumers have turned to mobile devices. Its annual sales, which were $49 billion in 2000, surged to $126 billion by 2010. They grew by just over $1 billion last year. Similarly, its annual profit, which jumped from $3.7 billion in 2000 to $8.7 billion in 2010, slumped to $7 billion last year.
In February, HP reported its first-quarter profit fell 44 percent from a year earlier and that sales were down in three major divisions.
HP has been racked by problems for more than a decade, resulting in turmoil among its executive ranks.
After hiring Carly Fiorina as its CEO in 1999, the former Lucent Technologies executive came under fire for the company’s lackluster performance and her decision to buy Compaq Computer for $19 billion, which prompted nasty wrangling among HP’s founding families.
Ousted in 2005, Fiorina was replaced by Mark Hurd. But he resigned in August 2010 after being accused of falsifying expense reports in a scandal that involved sexual harassment allegations by an HP contract employee. The CEO who replaced Hurd, Leo Apotheker, was canned after 11 months when his efforts to redirect the company were not well-received, leading to Whitman’s selection in September last year.
It was not immediately clear how many of the laid off employees are in the Bay Area and the company has been vague about how much of its workforce is based here. However, Whitman said during a talk at Stanford University in March that HP had 87,500 employees in the United States, including about 16,000 in California. Officials in Palo Alto, where HP is based, and in Cupertino reported last year that the company’s combined workforce in those two cities was about 5,000.
