HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem - InformationWeek

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5/23/2012
06:29 PM
Art Wittmann
Art Wittmann
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HP Cuts 27,000 Jobs, Doesn't Fix Identity Problem

A little more guidance on HP's long-term vision would go a long way right now, with customers and investors.

Hewlett-Packard's second-quarter earnings call on Wednesday was a somber affair, as the company revealed that it will be cutting 27,000 jobs--8% of its workforce--during the next couple of years, amid slumping profits. There were some bright spots. Earnings per share of $0.98 came in above HP's earlier guidance of $0.91. But there's no ignoring the fact that HP's stock price hovers around its book value, meaning any significant further slide would imply that shareholders would benefit if the company were sold for its parts.

During the earnings call there were items to like and others that will make shareholders shudder. On the down side, revenue in HP's printing and imaging group fell 10% from the year-earlier quarter, while PC unit revenue rose a paltry 0.4%. There's not a lot HP can do about that softness. Other imaging companies are getting hit as well, and HP's Personal Systems Group simply can't make highly differentiated products. HP does have a strong relationship with Microsoft, so there may be some hope there. But the company won't make tablets or phones running Windows 8, so the story for PSG is pretty bleak.

CEO Meg Whitman repeated a few times that HP's strategic pillars are cloud, security, and information management. With the continuing interest in big data and analytics, and the perpetual interest in cloud and security, these seem like good bets, but they got only light treatment during the earnings call. Autonomy, a major piece of HP's information management pillar, acquired last year for $11.7 billion, is struggling--so much so that HP is replacing the founding management with HP insiders. HP's latest foray into the cloud is just coming out of beta, so there are no financials on its performance. Whitman made no mention of specific products within HP's security portfolio.

Revenues for other groups were down year over year but mostly up from last quarter. HP is reworking its services group, whose revenue was down 1% from the year-earlier quarter, so that it can better leverage its software assets. Revenue from enterprise servers, storage, and networking fell 5.5% from a year earlier.

HP said its restructuring plans should generate annualized cost savings of between $3 billion and $3.5 billion by 2014, money that will be plowed back mainly into its cloud, information management, and security businesses and to restructure its services businesses around those areas.

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The biggest competitor for that savings, however, will be the need to boost the company's earnings per share. HP has promised shareholders north of $4.00 for the full fiscal year, and it will need a strong second half to hit that mark.

HP continues to have an identity problem. Sure, it wants to be the slick purveyor of everything related to cloud, big data, and security, but it's stuck being the pimply faced kid with braces.

Whitman's message was steady as she goes. The problem is that steady as she goes is boring the life out of investors. A little more guidance on the company's long-term vision, as it reports progress on the moves it has made toward fulfilling that vision, would go a long way toward reassuring customers and investors alike.

The pay-as-you go nature of the cloud makes ROI calculation seem easy. It’s not. Also in the new, all-digital Cloud Calculations InformationWeek supplement: Why infrastructure-as-a-service is a bad deal. (Free registration required.)

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