Management Strategies

11:09 AM
Art Wittmann, InformationWeek
Art Wittmann, InformationWeek
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HP Layoffs Signal Punishing Fall

Unless HP can turn enterprise software, cloud services, or some other line into a high-volume, high-margin business, it's in for a world of hurt.

Hewlett-Packard's second-quarter earnings call is scheduled for May 23, and news already has leaked that CEO Meg Whitman will announce that the company will cut as many as 30,000 employees--about 9% of its workforce--as part of a restructuring plan. The news breeds speculation that HP's earnings will continue to be weak, requiring a fairly drastic cut in expenses to prop them up. It also comes on the heels of an oddly upbeat first-quarter earnings call in which HP announced that earnings had fallen 44% from the year-earlier quarter.

As HP's plight unfolds, it's tempting to compare it to others that have faced down a reinvention problem. There's Cisco, which has shed products outside its core mission, trimmed staff, and reinvented internal processes over the past two years, all to excellent effect.

But that's not a good comparison because Cisco has something HP doesn't: industry leading products that command huge profit margins. Cisco makes a lot of hay with its fancy televideo products, phones, and even mobile devices, but it's the dull products like its hugely successful ISR routers (the little gizmos found in hundreds of thousands of branch offices and retail stores worldwide) that pay its bills and allow the company the luxury of time as it goes through its reinvention process.

Sure, investors would always like a company such as Cisco to fix its problems instantly, but even when its performance is down, it's still very good. In the same way, Oracle can absorb the stupidity that was the Sun acquisition, which would have sunk most any other company, because when you've got a namesake product that drives revenue like Oracle's database, the market and everyone else gives you a pass. IBM has its Global Services business. Microsoft, for all its perceived problems, still has its Windows and Office cash cows. For all of these companies, fat margins mean time for reinvention.



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