HP's CEO says layoffs critical to company's health

Seven facts about HP's restructuring

Hewlett-Packard plans to cut 9,000 people by Oct. 31, the end of HP's fiscal year, as part of a multi-year turnaround plan.

By the end of 2014, the company will have cut 27,000 people in total, some through early retirements, out of a workforce of 350,000.

That's all part of a plan by HP to boost its research and development spending, improve product quality and bring new focus on cloud computing and software.

Much of the focus will be, at least initially, on HP's layoffs. "Workforce reductions are never easy," HP CEO Meg Whitman told analysts on a conference call Wednesday. "They adversely impact people's lives, but in this case they are absolutely critical for the long-term health of the company."

HP's revenue was down 3% in its latest quarter compared to the year-earlier period, the company announced Wednesday.

With the layoffs comes a shift to three strategic pillars -- cloud, security and information management, said Whitman. Big data and analytics were also mentioned as key directions for the company.

Gartner analyst Mark Fabbi said of HP shifting its investments, "What we need to hear pretty quickly: What are they going to do to actually show leadership?

A shortcoming for HP, Fabbi said, is that it "participates in a lot of markets but they don't really lead very many, they don't speak with a loud voice, they are not seen as being visionary."

Here are seven issues facing HP and some planned responses:

  1. HP is "reducing the number SKUs and platforms," said Whitman. She did not explain what products this might involve, or what platforms will be impacted.

    HP is holding its annual user conference, HP Discover, in Las Vegas in the first week in June. Platform roadmaps are high priority items for users at these conferences.

    "Her biggest challenge at HP Discover is convincing people that she can streamline this operation, take cost out without there being a hiccup in terms of execution," said Crawford Del Prete, an analyst at IDC.

  2. "We are going to increase the R&D budget pretty substantially," said Whitman. HP is spending about $3.5 billion a year on R&D. It will take some of the layoff savings and spend them on research.

    Whitman said the company is looking for "organic innovation," meaning new technologies developed in-house. She didn't rule out smaller acquisitions to augment products and services.

    "To me this sounds like long-term plan, and not a knee-jerk" economic response, said Frank Gillett, an analyst at Forrester.

  3. HP plans to invest in career training and development. This was emphasized on the conference call. HP may be trying counter the impact the layoffs will have on the workforce.

    The overall layoff equals about 8% of HP's global workforce.

    The overall number layoff number may be large, but Gartner's Fabbi points out that it is being spread over two years. "The number sounds big, but in the scheme of things it's not, really," said Fabbi, of the layoff.

  4. Four: HP's sales of business critical system are being impacted by Itanium revenue decline, said HP officials on the call.

    HP officials didn't explain why Itanium is hurting, probably because they didn't need to. Oracle last year said it will stop doing new development of its software on Itanium. The two companies are in court over the issue.

    Without an agreement by Oracle or a workaround, "it's going to be really tough to sell those systems to Oracle customers," said Charles King, an analyst at Pund-IT.

    HP has a program to move some Itanium customers to an x86 platform.

  5. Whitman said HP plans to look at the design and quality of its products. She said the company needs to have "the very best quality in the industry" across all our products, and while she believes it has good quality, "I think we can do better there."
  6. One thing out of HP's control is Europe. Whitman, who recently returned from trip to Europe, said every business leader in the EU that she met with is concerned about Greece.
  7. HP may move aggressively to make leadership changes as part of its restructuring.

    The first person out the door is the founder of HP subsidiary Autonomy, Michael Lynch, who was its CEO. HP acquired this company last year for $10.3 billion.

    HP officials, on a conference call Wednesday with analysts, said Lynch was leaving after "a very disappointing" licensing revenue quarter.

    Taking his place is Bill Veghte, HP's chief strategy officer and executive VP of HP Software. Lynch will stay on for an unspecified transition period.

  8. Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

    See more by Patrick Thibodeau on Computerworld.com.

Copyright © 2012 IDG Communications, Inc.

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