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HP Inc. this week provided yet another example of the well-documented problems in the global PC market.
The company in the last financial quarter saw revenue in its PC business fall 13 percent year-over-year and core printing sales drop 17 percent. Overall revenue for the fiscal first quarter fell 12 percent. In response, HP executives said they would accelerate the restructuring plan they had outlined during a security analyst meeting in September 2015.
The meeting was almost two months before Hewlett-Packard split in two, creating Hewlett Packard Enterprise (HPE), which sells enterprise IT solutions and services, and HP Inc., which houses the old company’s PC and printing business. At the time, officials with HP—who already had slashed tens of thousands of jobs over the previous several years—said they expected to cut another 33,000 jobs after the split, 3,000 of which would come from HP Inc. over three years.
However, HP Inc.’s difficult first quarter convinced CEO Dion Weisler that the company needs to accelerate the restructuring plans, which means that 3,000 jobs will be cut in 2016. About 400 people already had left the company over the past couple of months, according to Chief Financial Officer Cathie Lesjak. The layoffs will save the company about $300 million a year starting in 2017, the executives said during a conference call with analysts and journalists to discuss the financial numbers.
It will cost the company about the same amount in charges, Lesjak said.
“Accelerating the restructuring that we talked about at the security analysts [meeting] from three years into this year has obviously a huge labor component to it,” Lesjak said, according to a transcript on Seeking Alpha. “But I also want to call out that when we talk about material improvements in our non-revenue-generating costs. We’re not just talking about labor actions. In fact, in the short term, the value in terms of cost reduction is going to be more in the non-labor area, which will provide savings on an ongoing basis, some significant savings in this year, in the second half, and then going into 2017.”
Weisler said, “There may be even more opportunity to reduce cost and streamline processes, and we will share details when finalized.”
Analysts with IDC and Gartner last month noted that the worldwide PC market struggled through another difficult year in 2015, with shipments decreasing by as much as 10.6 percent compared with the previous year and the total number of PCs shipped falling below 300 million for the first time in several years. PC shipments have seen a steady decline since late 2011, as devices like smartphones and tablets have gained in popularity. Both analyst firms expect the contraction to ease in 2016, particularly toward the end of the year and into 2017, as more systems running Microsoft’s Windows 10 and powered by Intel’s “Skylake” processors come to market and consumers and business users begin replacing aging systems.
HP executives said they expect their PC and printer businesses to similarly stabilize this year as newer systems become available, inventory in the channel drops and the company continues to focus more of its efforts on higher-margin systems.
Weisler expressed frustration that Windows 10, introduced last year, has yet to drive sales of new systems to the extent he had hoped. He said that while Windows 10 is “a tremendous operating system platform … we have not yet seen the anticipated Windows 10 stimulation of demand that we would have hoped for, and we’re carefully monitoring any sort of price developments that could further weaken demand.”
HP Inc. Looks to Grow in Challenging PC Market
Microsoft officials have said that Windows 10 is in 200 million systems, and Gartner analysts have said that while the OS has yet to drive significant PC sales, Windows 10 adoption in the enterprise will happen faster than it did for Windows 7 six years ago. Fifty percent of enterprises will have started deploying the OS by January 2017, they said in November 2015. Driving the demand is the end of support for Windows 7, which will happen in 2020, compatibility with Windows 7 applications and devices, and growing demand for such form factors as tablets and two-in-one systems, they said.
While the contracting global PC market has been difficult for all players in the industry, HP has particular challenges, according to Bob O’Donnell, principle analyst with TECHnalysis Research.
“HP is more exposed to the consumer PC business, which has been harder hit” than the commercial PC industry, O’Donnell told eWEEK. “The lower end of the consumer PC business, which is part of their DNA, is really getting crushed.”
However, Weisler and Lesjak said during the call that the company would continue to grow its capabilities in commercial and higher-end PCs, moves that would make sense, O’Donnell said.
He also noted that there is a “fast-moving attitude” at HP and that company officials have shown a willingness to invest in innovation. The work the company has done with the Sprout PC is an example, and O’Donnell also pointed to the Elite x3 smartphone introduced this week. The stand-alone smartphone runs Windows 10 Mobile and can be combined with docking modules to create a form factor that is ultra-mobile and powerful enough to be considered an alternative to notebook and desktop PCs. The company also is developing systems in such increasingly popular form factors as two-in-ones.
Strategically, HP seems to be making the right moves, O’Donnell said. It’s just difficult to predict how such innovations will do in the market.