Jonathan Steel's Blog: HP slims down

But what's next?

So HP has followed IBM in cutting a (long overdue) chunk of its workforce - about 10 per cent globally. CEO Mark Hurd is also simplifying and merging the sales forces and a few other pieces of the HP-Compaq structure. While nobody would argue that the cuts are anything but sensible, a number of questions remain:

•  Is the merging activity a tacit sign that the Compaq takeover did not achieve its primary goal - to enable HP to compete with Dell at the low end, and with IBM at the more service-oriented high end? And if so, was the $19bn worth it, or just another monumental piece of Fiorina misjudgement?

•  What will the cuts in the workforce do to HP's already dreadful internal morale? Will they be seen as getting HP back on track or as yet another blow? Many people have drawn attention to the senior management that disappeared during the Fiorina years but it is less well known that the company lost good people up and down the organisation. How will these developments affect HP's attempts to replace some of the major talent it lost?

•  And what about HP's central problem - trying to compete with everybody at a time when competition is more intense than ever?

This last issue is the most serious. HP needs a better long-term plan than 'steady as she goes' - the company needs to redefine what it actually is. Sun's CEO Scott McNealy has for some time referred to HP as "the printer ink company". As usual with Scott's pronouncements, he is rude, funny and has a point.

HP has relied on the printing cash cow for a very long time. It has subsidised much of the company's other activity while it has grown and tried to compete with IBM. But printing is now under threat (largely from Dell), PCs are still not making any sort of money, and with the growth of Lenovo, HP is even less likely to make any money from them in the long term. It hasn't got the service organisation to compete with IBM (business consulting services particularly), and it doesn't control its own technology now, being pretty much an Intel shop.

Where is HP's focus and differentiation in the long term? It can't out-Dell Dell (no-one has yet), and competing in the corporate market with a reinvigorated IBM will be no cakewalk. Imaging, however, is still there to be had.

Why isn't HP spending more time and attention on extending its printing franchise to become the number one player across all things imaging and printing? A few modest acquisitions (and some serious disposals) could get HP there. But the window is closing - Kodak finally understands digital, Dell is making inroads (but only really printing for now), and everybody has got into digital photography and printing.

The longer Mr Hurd kowtows to the board's view that HP's strategy was basically right all along (it was just the execution that was off), even if that was what got him the job, the slimmer will be HP's chances.