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

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.

Related:

• HP beats the odds on Q2 earnings despite looming layoffs
• HP's big layoffs will only go so far
• A look at HP's decade-long R&D slide: Can Apotheker reverse it?
• 2011: HP confirms layoffs; Cutting 500 jobs at webOS division