HP's big layoffs will only go so far

HP will need to lay off workers to boost its profitability, but then reinvest the savings in more lucrative markets.
Written by Larry Dignan, Contributor

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.

Editorial standards