HP Restructuring Looks Ahead to Compete

By John G. Spooner  |  Posted 2005-07-19

HP Restructuring Looks Ahead to Compete

Hewlett-Packard says that by making cuts now, its investing in its future. But some analysts are still waiting for the other shoe to drop.

The Palo Alto, Calif., computer giant, as expected on Tuesday, enacted a major restructuring plan it says will get its finances in order and ultimately make it more competitive in the cutthroat computer marketplace.

The company, in a move that leaves its product groups intact, will cut about 14,500 jobs, or roughly 10 percent of its worldwide workforce.

Representatives said the company expects the measure, which serves to streamline operations such as information technology and seek out redundancies among the product groups, will save it nearly $2 billion per year, boosting profits and allowing it reinvest in its products as well as to offset so-called competitive pressures, said Mark Hurd, Hewlett-Packard Co.s newly minted CEO, in a conference call with analysts on Tuesday morning.

Righting its finances is only the first step in HPs plan to remake itself into a more formidable competitor, the company indicated. The restructuring will also adjust the way its direct sales staff works, making it easier for representatives to sell a wider range of products and services to businesses, for example.

But the company left out numerous details about the rest of its future plans—some of which might not be final as of now—including how it might adjust its product lines, such as PCs, storage, software and services.

Thus, despite largely viewing HPs restructuring in positive light, analysts said they were still waiting to hear more.

HP has a long list of issues to address, ranging from better sorting out the relationship between its indirect and direct sales channels—an issue the restructuring touches on by disbanding the HP Customer Solutions Group, which was responsible for sales to businesses, and moving the groups salespeople into its product groups—to differentiating its products from competitors and clearing up the confusion that having two PC brands creates, several analysts said.

"No one wants to see HP fail, because its one of the few remaining global PC companies and one of the few remaining systems companies that can do end-to-end solutions," which involves selling and servicing products ranging from back-end servers and software to desktop PCs, said Leslie Fiering, an analyst with Gartner Inc., of Stamford, Conn. "And, at the end of the day, it makes good products."

But good products only go so far. HP could make a useful start by addressing customers complaints about its large business account teams, which Fiering said have been known to set high expectations and not follow through.

Click here to read more about service and support ratings for HP, Dell and IBM.

"At the end of the day, the salespeople must return phone calls. Its account management 101," Fiering said. "I cant tar every team with the same brush, but fact that there are so many [complaints] leads one to think its structural."

Next Page: How HP can differentiate itself.

How HP Can Differentiate


Aside from sorting out its sales channels, HP must work to make sure its products stand out, said Chris Foster, analyst with Technology Business Research Inc. in Hampton, N.H.

"Other than the printing business, [Hewlett-Packard] doesnt have a strong differentiation in any of its products. Its obvious on the PC side, in industry standard servers … and it has pretty much eliminated the differentiation in business critical systems" by moving to Intel Corp.s Itanium chip from its own HP PA-RISC and Compaq Alpha processors, Foster said.

"I think the decisions [HPs management team] have made are great for the operational part or the business," Foster said, but added, "The next step is to figure out how youre going to grow, how youre going to get into high-margin businesses. That part is going to be more difficult."

Those high-margin businesses, all of which HP is either in now or capable of entering in some way, include offering consulting services, software and differentiated hardware, Foster said.

HP is already plotting its next steps in areas such as software and services. However, it kept discussions of its product plans to a minimum on Tuesday so as to avoid creating any confusion, said Shane Robison, HPs executive vice president and chief strategy and technology officer.

Robison said, in an interview with Ziff Davis Internet News, that HP is reviewing its product plans. Not surprisingly, making advancements in software, storage and services are among its goals.

"Software is an obvious area of growth for us, as well as services [and] storage" and new media, which includes items such as televisions for consumers and back-end equipment to deliver multimedia, he said. "That is where we will spend a lot of time and attention, between [CEO] Mark [Hurd], myself, and some of the other executives."

Although he declined to provide more details on HPs product plans—many of them are still being worked out and will be announced at a future date—the company is "looking at everything from enhancing existing product lines and services categories to adding new ones," Robison said.

Meanwhile, streamlining its two consumer PC brands, which include HP Pavilion and Compaq Presario desktops and notebooks, might help the HP PCs better stand out with consumers, said Richard Shim, an analyst at IDC.

Although HP "doesnt want to kill off product lines … I think it needs to pick which segments it wants to go to with and which brands," Shim said, because multiple brands "muddy the waters and confuse people."

Ultimately, "Theres a sense that doing business with Dell is easy and doing business with other companies [such as HP] is hard," said Roger Kay, principal analyst at Endpoint Technologies Associates Inc.

Thus, HPs got its work cut out for it when it comes to battling Dell Inc., the worlds largest PC maker, in the PC arena and companies such as IBM and EMC Corp. in other lucrative markets, such as services and storage.

HP has already invested in itself, hiring a new CIO, Randall Mott, and installing a new PC chief, Todd Bradley, who will work toward its new goals. Its also revised its printer products and its storage product line of late.

As Hurd sees it, there are numerous opportunities and more work ahead for HP, when it comes to its product lines and its efforts at winning new business.

"Were not under the illusion that weve finished all our work with what weve described today," he said. "We have clearly more work to do."

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