Hewlett-Packard expects to use $3 billion in savings to boost innovation around three areas of strategic focus: cloud, big data and security.
Hewlett Packard Co. has announced a multi-year “productivity initiative” that includes layoffs for 27,000 employees, or 8 percent of its workforce, by the end of fiscal 2014.
The initiative is designed to generate $3 billion to $3.5 billion in savings, according to the May 24 HP announcement.
HP said it is offering an early retirement program, so the total number of employees affected by the layoffs will be determined by how many employees take advantage of the offer.
The computer giant said it expects to use the savings to boost investment in innovation around its three areas of strategic focus: cloud, big data and security, as well as in other segments that offer attractive growth potential.
Additional savings will come from other cost reductions, including supply chain optimization, stock-keeping unit (SKU) and platform rationalization, go-to-market strategy simplification and business process improvement, the company said.
HP said it expects to reinvest savings in each of its business segments to strengthen their ability to stay ahead of customer expectations and capitalize on growing market trends.
“These initiatives build upon our recent organizational realignment, and will further streamline our operations, improve our processes, and remove complexity from our business,” said Meg Whitman, HP president and chief executive officer, in the announcement.
“While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long term health of the company. We are setting HP on a path to extend our global leadership and deliver the greatest value to customers and shareholders,” she said.
HP is grappling with slower demand for printers, services and data center equipment, “leading to a third-quarter profit forecast that was less than analysts predicted,” according to Bloomberg News.
Nevertheless, HP reported a big April quarter upside, with $30.7 billion in revenue, well above consensus estimates at $30 billion, according to Sterne Agee analyst Shaw Wu. “This was surprising in light of weak results from Dell and Cisco,” he said.
HP’s turnaround efforts “appear to be progressing better than expected and the company is arguably better positioned with its smaller 31 percent exposure to PCs,” he said.
HP’s layoff plan “is a critical step in the company stabilizing its cost structure to provide foundation on which future growth can be built,” Jack Narcotta, an analyst at Technology Business Research’s Computing Group, wrote in an online analysis.
“Whitman and her executive management team continue to reinvent the technology giant by moving its focus to data analytics, security, and cloud solutions that utilize all components of HP’s broad hardware, software, and services portfolio,” he said.
“TBR believes that the majority of the jobs cut will be across the services and hardware businesses, but that the software group will also be affected, even if minimally,” wrote analyst Jillian Mirandi.
She said the much anticipated Autonomy business unit has underperformed during the past two quarters and has been a disappointment to the company.
But Mirandi noted that industry veteran and HP executive Bill Veghte is replacing former Autonomy CEO Mike Lynch and she said she expects the business intelligence and analytics portfolio will begin to show revenue growth in the first half of 2013 and “has the potential to drive real business-unit alignment and cohesion across HP.”
Hewlett Packard Co., of Palo Alto, Calif., ranks No. 7 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.
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