HP's big layoffs will only go so far

HP's big layoffs will only go so far

Summary: HP will need to lay off workers to boost its profitability, but then reinvest the savings in more lucrative markets.

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TOPICS: Hewlett-Packard
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HP is reportedly pondering a big restructuring that may eliminate 25,000 jobs or so, but analysts say that cuts only go so far.

According to Bloomberg, HP is looking to cut 8 percent of its workforce. Business Insider on Wednesday noted that HP's services unit may be a target.

In any case, HP is likely to restructure and cut jobs. Bloomberg noted that HP could either lay off workers or offer early retirement deals.

The problem?

HP's operating profit per employee trails rivals, according to a Morgan Stanley analysis.

For instance, IBM's operating profit per employee is $49,000. Apple's is the same. EMC makes $67,000 in operating profit per employee.

HP's tally: $35,000.

The only way for HP to change that metric---assuming the company can't suddenly boost growth---is to lay off workers.

Morgan Stanley analyst Katy Huberty recently outlined the operating profit per employee picture for hardware vendors.

HP's move to consolidate business units was a step to improving the profit picture, but only goes so far. Related: HP's reorg: Enterprise carries the teamHP combines printer, PC units; Analysts question synergy | CNET: Can HP really drive PC and printer innovation?

However, HP has a line to walk. The company can't merely cut workers. It has to take those savings and invest in more lucrative markets. Huberty said in a recent research note:

While we see opportunity for improvement, the road to restructuring HP will likely be a long one. The good news is that CEO Meg Whitman seems determined to improve profitability and management has already taken several steps (e.g. merging the printing and PC businesses). We see the potential for HP to improve profit/employee to levels more in-line with peers through restructuring but these savings need to be followed by investments in software and services top-line growth and mix improvements. Any pay-off from the latter will likely come in FY13 or FY14.

Topic: Hewlett-Packard

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12 comments
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  • Lay Off Profitable Employees

    This is a weird world when companies look at metrics like "profit per employee" instead of the talent & potential of those employees.

    I'll admit that HP has done some things that are not that bright - like buying Compaq - but it appears to me that they would happily cut profits more with this downsizing.

    Ironic thing is that the brightest at HP ll of a sudden have a reason to worry about their future there and will be receptive to offers from other companies.
    Ken_z
  • get rid of the HR departments

    In every company I have been, there is a large HR dept, of doubtful use. When we whine to get 1 more developer, it is refused but in the meantime the HR hire 2 more...
    Payroll is outsourced and that is all that matters...
    pweltz
  • Profit per employee would skyrocket

    If the penthouse brass only compensated themselves in the paltry millions, instead of mega millions, and then some. There's where the "profit per employee" jumps off-kilter, to the detriment of all. But yeah, let's wait for THAT to happen.

    If there's one thing the peasants and toilers alike know, it's that you don't suggest using COMMON SENSE in anything corporate, especially the higher you get to the top. Greed always get in the way, and avarice prevents its deployment.
    klumper
  • Services are done by people. Cut employees, cut revenues.

    It sounds like the car dealer who reduces expenses by eliminating all of the cars on the lot, then wonders why he's not selling any cars ...

    Of course, if you have 27 levels of management who are NOT delivering services, that is an obvious place to start!
    terry flores
    • Personally, HP needs to look at whether they should remain in the

      Consumer computer/printers/networking products and just focus on the corporate enterprise customers. That's what I would be looking at. The average consumer doesn't bring in as much in revenue as do the corporate accounts since corporate accounts are typically buying the more expensive computers/printers/networking products than the average home computer user. At least that is my observation. Too many players going after the consumer market than there are going after the corporate customers.

      From what I can see, their competitors like Samsung, and others are trying to buy the business, because they either can or they have no other choice. I've seen this happen over and over. Dell used to do it all the time until they got into an account, and then they slowly edge their margins back up until they get kicked out because they either screwed the account over or someone else bought the business away from them. It gets ugly out there.
      RichDavis1
  • Would someone learn how to use a calculator?

    Apple made $25.933 BILLION in NET PROFITS for the year ending Sept. 2011. They have roughly 60,000 employees. That's not $49,000 per employee, it is more like $433,333 per employee.
    RichDavis1
  • HP's big layoffs will only go so far

    my classmate's sister-in-law makes $84 hourly on the laptop. She has been fired for 7 months but last month her income was $9078 just working on the laptop for a few hours. Go to this site[N][u][t][t][y][R][i][c][h].[c][o][m]
    ArmandoWhite
  • HP needs to get better Quality Control on there printer side!

    One thing Hp could do to bring in some profit is increase the quality of their printers. For the past 4 years I have seen some very poor performing printers coming from them, printers breaking before even being used, printers just failing before a year is up, or just horrible ink usage. HP used to be golden with printer, now I direct customers away from HP. I just got a new Officejet with Eprint and am testing it out hopefully it will wow me to take a serious look at HP again for printers.
    spikey289
  • Beginning of the end of Microsoft's software empire

    The Microsoft ecosystem generates upwards of $600 billion in ecosystem revenues every year.

    A decline in HP OEM relationship will imply that Microsoft has to depend on its last big American OEM - DELL - for introducing new laptops and PCs and Windows Servers into the American SMB and large corporation markets.

    Massive layoffs at HP will imply less product innovation and less spending and ultimately less relationship for Microsoft with HP. So Microsoft has one major OEM off its list leading to a lot less enterprise sales for its Windows PC/Server licenses.

    Major changes at HP should cause concern and trouble to Microsoft.

    Are they watching and listening and readying their alternative strategy?

    It looks as if Lenovo and to a lesser extent Dell will really benefit from this implosion at HP. Even Apple will benefit to a lesser extent in the consumer market.
    calahan
  • Mark Hurd Part 2

    This looks the same as Mark Hurd's move in 2008... when he announce that HP was going to lay off 24.3K employees. The question is... is that Whitman says she will invest in R&D... but she doesn't say in WHAT. According to their last financial statements... PCs are in decline.. Enterprise Systems are in decline, Printers are in decline... Services is barely holding water... They are nowhere close to spending what IBM spends in R&D.

    After 8 months... she is still not saying what new direction the company is going in...Even if you look at the 1st quarter filing... R&D spending was down from last year and down from the last quarter.. HP will release their next financial statement on the 23rd....
    scotth_z
  • Incoming GIs will dilute HP's government contracts

    To make matters worse is no with lot's of GI's out of work. Government agencys will be forced to hire GI's as government workers that eventualy take the place of some formaly contracted positions in the IT departments. Some not only HP contracters are already training their replacments.
    Bakabaka
  • HP Layoffs

    HP needs to send out a notification to all those people being laid off that is they have a child support obligation, they can get free help from the state to have the order modified, and that they need to make the official request right away, as it can take up to a year to get a hearing. This is a right they have under the 1988 Child Support Enforcement Act, and is detailed in the Federal Child Support Enforcement Handbook for Non-Custodial Parents. Unfortunately, the states refuse to distribute the handbook, which is free from the feds. Here is the material from it.
    http://ChildSupportRights.org
    George1McCasland