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Hewlett-Packard Company (HPQ - Analyst Report) is moving inline with the global downsizing trend and announced its plans to retrench an additional 2000 employees to save costs. CEO Meg Whitman has been restructuring operations to boost company’s profits and this layoff is a part of that strategy adopted by her and the senior management team.
With the addition of the 2, 000 planned layoffs; HP is now projecting 29,000 job cuts by 2014, up from 27,000 projected by the company in May. This is almost 8.3% of the total staff employed by the company.
The company did not explain the reasons for the additional job cuts, but it is evident that it is trying to save cost and increase its operational efficiency.
HP has been suffering a tough run and the reduction in personal computer sales badly affected the company among the other headwinds. Introduction of tablets and other mobile computing devices have taken a toll on HP’s PC sales. Particularly because HP had a thriving notebook business that was the worst affected by the new-age tablets. While Microsoft’s (MSFT - Analyst Report) Windows 8 and Intel (INTC - Analyst Report)-inspired Ultrabooks will help this year, the weaker consumer demand overall will dampen the impact. To offset this impact, the company is trying to explore more profitable lines of business, which includes segments such as business software and consulting. However, this might take some time to have a meaningful impact on its results.
Also, HP continues to see many challenges, stemming mainly from macroeconomic concerns and secular changes in the printing market. While Lexmark’s (LXK) exit from the printing business could improve chances of share gains, this is not likely to be meaningful in the long term, as the inkjet market continues to shrink due to the easy availability of mobile media devices such as tablets and smartphones, which are reducing the need for taking printouts. Margins in the services business are also likely to remain weak this year.
The company is in a dire need to rebound as it is constantly losing profit and market share. The company could have chosen either of two turnaround strategies. The first would be by cutting costs related to labor, PP&E and Marketing. The second would be the acquisition for growth strategy. The company opted for the first one as it was easier to implement.
A similar strategy has been adopted by the second largest computer maker Dell Inc. , who is planning to cut its UK workforce. This is a strategy to trim the company’s expenses by more than $2 billion over the next three years. Dell is also taking necessary steps to diversify into high-margin business that will offer better growth opportunities for the company. Thus, the two major technology companies seem to be moving in the same direction.
HP is implementing various strategies to generate growth. As discussed, the company is implementing some major restructuring actions to manage costs, drive growth and improve the health of its balance sheet.
Currently, the company holds a Zacks #3 Rank (Hold).