Analysts Say the Cuts Are Painful but Necessary

By Chris Preimesberger  |  Posted 2012-05-24 Print this article Print

John Madden (no, not THAT John Madden), principal analyst at Ovum, had a take on the HP situation that probably speaks for many industry observers.

"HP's restructuring is painful but necessary in order to restore market and customer confidence after two years of turmoil [read that as 'leadership turnover and indecision']," Madden wrote in a media advisory note. "What's somewhat encouraging is HP's indication that most restructuring savings will be directed toward R&D€”a  part of HP's legacy and history which the company has sorely undervalued in the past few years, but which will be a critical component of HP's recovery in new product and service development."

However, the ability to reinvest will be dependent on the stability of the revenue stream; if sales soften, then Whitman will be under pressure from Wall Street to not invest, but cut more, Madden said.

"So as of now, we've seen the major pieces of Meg Whitman's restructuring and operations plan; the key missing piece is her long-term company vision and strategy, which hopefully will be revealed to an anxious customer base soon. Even with this restructuring, the question still remains: Just what kind of company does HP want to be next year, three years, five years from now?" Madden wrote.

Madden then wrote that Ovum recommends that enterprise and public sector IT managers "carefully assess the risks associated with committing to HP for strategic IT projects. Buying commodity-grade products, e.g., x86 servers running Windows, will have low risk. On the other hand, any projects that rely on innovation, sustained R&D, integration of acquisitions, and participation of key HP staff over time will have a much higher risk profile," he said.

'Future-proof IT Strategies'

"IT executives should carefully future-proof their IT strategies and procurement plans to incorporate the uncertainty that has settled over HP. Unfortunately, there are reasonable scenarios where HP does not survive as a strategic supplier of enterprise-grade technology and services," Madden said.

Well, that last part is pretty hard to imagine. HP cleared more than $1 billion this last quarter, despite its doldrums; it's not going to go into the red any time soon. The venerable old-school company will be a supplier of IT goods and services for a long while yet.

But the last several years€”still only a small percentage of the company's celebrated history€”remain a cause for concern. HP can erase a lot of that doubt by having its R&D department get back into the game and come up with new products that make a real difference, like it did in the old days with the pocket calculator and laser printer.

Chris Preimesberger is eWEEK's Editor for Features and Analysis. Twitter: @editingwhiz


Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz

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