HP cuts 27,000 jobs, to plow savings into R&D

HP cuts 27,000 jobs, to plow savings into R&D

Summary: HP will cut jobs and expand its recent R&D bets in services, software and hardware.

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HP will cut 27,000 jobs --- around 8 percent of its global workforce --- in an effort to restructure the company to bolster its bottom line. HP said it will take $3--3.5 billion in savings and invest it in R&D.

HP chief executive Meg Whitman said the cuts will spread over the next two years --- the end of fiscal year 2014 --- reducing the short-term harm to morale in the company.

The cuts are necessary given HP's productivity, and most of the savings will go back to R&D. "We are not taking our eye off the ball when it comes to executing against our ongoing priority," she added.

Today, 3 percent of sales goes into R&D. Once the savings kick in, HP will see a rise to 5 percent of revenue assuming revenue figures stays where it is. Whitman also said she expects to reduce expenses in other areas in order to afford the dive into R&D. It's not clear whether this means other savings or further layoffs.

Whitman seems to realize the obvious: jobs cuts are not a cure all for HP. HP had a series of chief executives who failed to future-proof the company. HP has jettisoned more than 75,000 jobs over the past decade and again resorts to a band-aid solution to a broken limb problem.

Where will the money go?

In a statement, HP said it will make the following R&D bets:

  • Services will invest in cloud, analytics and high-value delivery.
  • Software will invest in analytics, big data, application management and security.
  • The servers, storage and networking unit will bet on cloud and big data technologies.

Those bets are largely already made by HP, but apparently the company will step up its current efforts. HP will also invest in marketing and sales productivity to enable a streamlined experience for future business with the company.

HP will take a charge of $1.7 billion in fiscal 2012 to restructure, and another $1.8 billion through 2014.

Over the past decade, HP has become bloated from a spate of acquisitions and now is dealing with the hangover. HP's direction was all over the place and in an attempt to compete with its rivals on a number of fronts; it failed on most of them.

If we take HP's operating profit per employee, both Apple and IBM rest at $49,000, and Dell falls slightly short at $48,000. HP, which retains the PC building top spot over Dell, only makes $35,000. HP has to lower the ratio and lay of vast swathes of employees to balance out the numbers.

Under former chief executive Mark Hurd's tenure, HP chopped around 50,000 jobs in five years. When Leo Apotheker sat in the driving seat, the board approved a respite plan, despite it only recently passing Hurd's deep cuts. Apotheker was booted out less than a year later, and now Whitman is back to making job cuts.

It's worth noting, despite it being an obvious fact, that HP has shed more than half of its stock price since Hurd's resignation in August 2010. HP has also lost more than half of its market cap worth, dropping from $107 billion in Q3 2010 to $41.3 billion at market close.

HP has missed a few market curves --- notably smartphones and tablets --- and left the company tethered to PCs and printers. Summer demand for PCs will be slow. HP has the October--January period in the bag with the launch of Windows 8, but analysts have already warned that the initial uptake to the forthcoming operating system may cut PC sales short on last year's figures.

Image source: Flickr (CC) via CNET.

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Topics: CXO, Hewlett-Packard, IT Employment

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18 comments
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  • HP cuts 27,000 jobs, to plow savings into R&D

    it is the most sensible action hp had done since their mistake of putting their trust in hurd. hope they will recover soon. r&d was, is, and will be the only source of longevity and success for all companies.
    kc63092@...
    • I can't disagree with that, actually

      R&D is usually seen as an expensive cost, with the motto "research for its own sake is not profitable" - but it's research, even for its own sake, that can create something people want to buy.

      So even with my previous, cynical post, I'll keep an open mind.

      (And printing is a dying industry anyway, the way things are finally starting to move toward "paperless"... but companies have paid through the teeth and some printer designs were made just to profit the company. It's sloppy to throw an imaging drum in with a toner cartridge, as I've had to ask the purchasing department to buy another toner cart thanks to streaks going down the page and on pages that are supposed to be pristine... other brands that keep the toner and imaging drum as separate entities also tend to be better-designed and more durable in the first place, hence my rant about HP... but that's not Meg's fault. But she's now in a position to incite positive change. We'll see what happens, but if R&D is given proper attention, I'll be more than happy to expunge my cynicism. )
      HypnoToad72
      • They'll always be a need for some printing

        It may be a lot less in the future but they're still scenarios out there where digital signatures won't cut it.
        ScorpioBlack
      • @ScorpioBlack

        Handwritten signatures were stupid before, and they're even worse now. Even with all the nonsense going on online, check fraud still takes the cake as greatest percentage of fraud by a wide margin.
        tkejlboom
      • @tkejlboom

        So the method(s) used for thousands of years since the beginning of recorded time is "stupid" and "full of nonsense".

        Hmmm....good to know.

        lol... :D
        ScorpioBlack
  • As a result, I'm sure HP will be prosperous for years to come...

    thanks to more corporate welfare handed out by government because nobody wants to buy their products or services and they're "too big to fail" or whatever... (regardless of quality and their printers have sucked gerbil eggs for years...)

    Real profits stem from people earning good money. Not from this cyclical downward spiral of what may as well be called "cannibalization", of which no CEO will win in the end, especially when it'll be their turn to be called the most overpriced laborers... if you call what they do "labor", of course.
    HypnoToad72
  • Well done, HP

    For once I have something positive to say about HP. This is the best decision they've made in years. R&D and to a smaller extent, engineering, are the first to get the axe during any restructuring, mostly by quick-turn CEO's whose only goal is to squeeze as much $$ as possible out of the 2-3 years they expect to stay in the company. They've all but forgotten that cutting edge R&D is what got them there in the first place.
    I wish HP all the best.
    kraterz
  • Morale

    [q]HP chief executive Meg Whitman said the cuts will spread over the next two years ??? the end of fiscal year 2014 ??? reducing the short-term harm to morale in the company.[/q]

    This is nuts. Studies have shown that pulling the bandaid off quickly nearly always produces better results. How would you like to be working at HP over the next two years with no real idea if you'll be on the block or not. I suspect a lot of folks they want to keep will head out the door to make sure they don't get fired a year or two from now.
    raleighthings
    • Time to look at IBM again.

      We were a heavy Sun shop for years, until endless layoffs and demoralization made their service the pits. The same thing is happening with HP, I guess the employees have known the layoffs were coming for a long time. So, who is left? Dell? Doesn't look promising. IBM? Expensive, but their people seem to know their stuff. Cisco? The presentations they made to us last year were full of "futures" but no so much that we could use right now. Oh well.
      terry flores
  • HP & Dell need to transform themselves

    Their hardware business is in tatters and putting all their eggs in the Windows 8 basket will make it worse. They need to focus on moving into services, a la IBM.

    http://www.tech-thoughts.net/
    sameer_singh17
    • HP & Dell need to transform themselves

      they already did during fiorina's tenure. the reason hp bought compaq was the professional services, they wanted to diversify like ibm into services (which by the way surpasses the hardware business in terms of profit.)
      kc63092@...
    • Exact opposite

      HP needs to stop trying to be other companies... a la IBM. Autonomy is so far a DISASTER. $10 billion based on sharp growth and instead presented with sharp DECLINE. HP needs better switches, better leadership, better employee relations, less administrative overhead.
      tkejlboom
  • HP trying to undo the damage from Mark Hurd.

    I find it ironic that now HP is trying to undo what Mark Hurd did. That is HP will now invest in R&D. This is the complete opposite of what Mark Hurd did. In fact Mark absolutely destroyed R&D which is the reason HP now has no products to match its competitors.

    I wish I could find the link to the comment I made years ago when Mark became CEO where I predicted HP's current situation. Basically what I said was that Wall Street would love Mark but the sugar rush would be short term lived and in the process he would destroy the company.

    The recent moves at Oracle such as suing Google in order monetized its purchase of Sun Microsystems, has Mark Hurd fingerprints all over it. In the process Oracle now has destroyed its image as a developer friendly company.
    mktpostal@...
    • And sadly

      R&D is not something that can be axed and then miraculously brought back to life by funneling some money in.

      R&D is very people/talent oriented and it takes a lot of hard work and time to build up good R&D teams.

      HP has poisoned that well and may find a lot of difficulty bringing talent back in.
      SlithyTove
  • Aside from whatever wisdom this decision has re: HP profitability,

    this proves to all employees everywhere, both current and potential, that there is no such thing as a "team". So many layoffs amount to not merely being "benched", but being thoroughly "cut" from the team. Unless they're an owner or other principal, and not merely a stockholder, no one should EVER believe they are a member of a "team". That's all corporate hype, uttered only to make you feel included. Don't fall for it; look out for yourself, because - ultimately - no company will look out for you.
    nowon
  • horsefeathers

    I have long come to a conclusion that beancounters run corporations/companies with stock. I am amazed by history, how companies made profits when they had large human workforces and how today they cannot wait to shed them and claim they make little money. Truth is the profits on stock that satisified an investor in the 1950s is not good enough today. The salary of a CEO and his lieutenants has gone up about 300 times what one made in 1980, yet employee salary has not done the same. So, it boils down to greed for a chosen few. I am a republican, a man who believes in business, but I refuse to use borrowed money. Nobody will dictate how I run my company - except me (well then Uncle Sam likes to poke his nose in my affairs and other companies dealings affect me... but I will not be directly beholden to anyone like them).
    tyrannosaur
  • China Syndrome

    Well, it seems like its not going to get better. More jobs lost, more trouble ahead. I know AMD cut %10 of its workers late last year, I think Intel recently made some cuts recently ? Its unreal that Actual companys that produce Actual Material,with real peoples lives depending on their jobs , are cutting back, while (On Paper) "Companies" like facebook makes billions from NOTHING !!! HPs future isnt looking as bright as predicted either,, anybody else notice how Chinas lenova PCs are getting "better" and "cheaper" more and more each day ! I dont think they are cutting jobs for R & D. We should copy Chinas technology and reverse this sad trend,,,
    sightsandsounds
  • Re:Cuts

    If CEO Meg Whitman has to cut 27,000 jobs to do something to the company's income then she's a failure like most CEO's who's not being creative and not focusing where the blame is. You don't solve what's led up to that problem by doing that it's just the easiest way to get out of responsibility of failure.

    When company's have to get rid of 5 to say 20 bad employee's that's one thing when you cut hundreds and thousands then tens of thousands your a pathetic excuse of being a Corporate leader. Real leadership goes out of their way to keep employees. I don't care for Apple but their CEO just said no on a $75,000,000.00 cause he knows if he takes that jobs will have to be cut to pay for it.

    Meg is clueless to technology or knowing how to be a real leader but like most all CEO's once you in the groups club house you can go to any company at will and cut the workers ability chance to have a prosperous job and career while you celebrate at their expense.

    Real leaders take the blame admit to their mistakes and should be accountable for not keeping closer tabs on the things going on. You don't wait till its that far out of hand then first response is cut jobs. How about taking your nose out of the air and get with the program.

    Meg if your a leader prove it first by seeing who in the best paying jobs are responsible for this mess? 2nd why dont you take away their bonuses, 3 why not an incentive and means of rewarding the ones who need to put food on the table. 4 where is your technology leadership knowledge and creativity skills?

    The truth is you also just cut employees who were also most likely customers as well. Even if you cut these jobs and say 1/2 of them were customers you just axed about a quarter of a million dollars in sales to hit your red line as well as now having to pay severance.

    Where's the investors demanding the leadership to provide answers to the failures that has to come at so many loosing a job? If I was an investor I'd sure as heck ask for answers and want to know why weren't you on this sooner? Why didn't you come up with ways of change before this same tactic all CEO's do? Next how do you intend to better things by this you also will turn away their friends , and families maybe adding more financial loss.

    Innovation nope, Leadership nope, Responsibility nope, willing to put your own money back into the company .... laughing nope your not that confident or you would of done more beneficial things rather then doing the same pathetic job.

    Well Meg congratulations of helping so many out and leading the company .... right into the ground.... BTW is HP gonna make good on a 90% whole defective line of Laptops you made a few years ago? Oh never mind you will blame others for that as well.
    wpreece