Hewlett-Packard will cut about 10% of its workforce as split nears

September 16, 2015 11:29 AM

Bloomberg)—Hewlett-Packard Co., the technology company splitting into two separate entities, said it will cut as many as 33,300 more jobs as CEO Meg Whitman tries to refashion the business for a rapidly changing technology market.

The two companies that will emerge in November, Hewlett Packard Enterprise to supply businesses with high-end technology, and HP Inc., which will sell personal computers and printers, are designed to be more nimble and specialized. Hewlett-Packard had 302,000 workers at the end of October 2014, down from a peak of about 350,000 in 2011. HP Home & Home Office Store, which appears to fall under HP Inc. when the companies split, had Internet Retailer-estimated  2014 web sales of $1.16 billion, according to data.

“HP absolutely needs to fix enterprise services, PCs and servers across both its companies,” said Anand Srinivasan, an analyst at Bloomberg Intelligence. “Some of the issues are market related and some of them are HP-specific. The solution to revenue growth is not going to come from restructuring actions.”

Hewlett-Packard, No. 42 in the Internet Retailer 2015 Top 500 Guide, will incur a charge of about $2.7 billion as part of the restructuring, the company said Tuesday at a meeting with analysts. It had previously disclosed $2 billion in probable cost cuts at the services division within Hewlett Packard Enterprise, and found an additional $700 million in savings across the business, said Tim Stonesifer, chief financial officer of Hewlett Packard Enterprise.

Hewlett-Packard shares rose 3% to $27.93 at 9:35 a.m. in New York on Wednesday. The stock was down 32% this year through Tuesday.

Gaining workers

As many as 25,000 to 30,000 of the job cuts will take place in Hewlett Packard Enterprise. HP Inc. announced 3,300 workforce reductions over three years and $300 million in restructuring charges.

“Management reiterates that this will be the last restructuring it undertakes, but this one has been going on for several years,” Srinivasan said.

Hewlett-Packard employed 172,000 people in fiscal 2007 before acquiring computer-services provider Electronic Data Systems Corp. in 2008 and almost doubling its workforce, according to data compiled by Bloomberg.

“We have an opportunity to be more successful as two companies than we would as one,” Whitman said at the event. “We’ll read the winds of change and we’ll course correct faster.” Whitman is scheduled to become president and CEO of Hewlett Packard Enterprise while serving as board chairman of HP Inc.

The reductions announced Tuesday represent about 10-12% of the estimated 250,000 people expected to be employed by the enterprise half of the company after the split.

Plug the drain

The company’s enterprise services business has lost about $4 billion in annual revenue since 2011. At the event, Whitman likened the losses to water draining from a bathtub.

“A big step forward would be if enterprise services can stop shrinking,” she said. “Before you can grow you have to fill the bathtub up.”

Hewlett-Packard executives suggested that they’ve made enough changes to enterprise services to stem the bleeding. In 2013, three accounts represented 65% of the division’s total operating profit, said Mike Nefkens, general manager of enterprise services. “Today, no single account represents more than 10%,” he said.

Moving workers

It’s also shifting employees to low-cost areas, and hopes to have 60% of its workers located in cheaper countries by 2018, Nefkens said.

“We’re exiting labor in high-cost countries,” he said. “Our current workforce rebalancing will eliminate the need for further corporate restructuring.”

Hewlett-Packard has been telegraphing its shift to outsourcing for months, with Whitman saying in June that “there might be a slight movement to more locations outside the U.S.”

The company expects to generate $3 billion in sales relating to cloud computing this year, Whitman said, and sees that growing by 20% year-over-year for the next three years. It anticipates generating free cash flow of $2 billion to $2.2 billion in its 2016 financial year, which begins in November.

HP Inc. outlook

HP Inc. will have about $4.5 billion in cash and $6.8 billion in debt as of Nov. 1, said chief financial officer Cathie Lesjak. The company faces weakness in PCs and printers and expects “the year-over-year decline in revenue to moderate,” she said.

The company expects to generate free cash flow of $2.5 billion to $2.8 billion in 2016, with earnings per share in the range of $1.67 to $1.77.

“We need to be maniacally focused on cost day in, day out,” Lesjak said. She highlighted inventions such as 3-D printing and new computers as evidence HP Inc. will keep developing new products.

“With any great company, you can’t cut your way to greatness,” Lesjak said.




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