Absent from public view since being named CEO of Hewlett-Packard Co. in March, Mark Hurd moved to center stage last week to outline a massive restructuring designed to slash expenses and create a tighter cost structure for the Palo Alto, Calif., company.
Saying his objective is to create “a simpler and nimbler HP,” Hurds plan calls for cutting HPs global work force by 14,500—or almost 10 percent—axing the Customer Solutions Group and redistributing the sales force, all of which will mean $1.9 billion in savings annually starting in 2007. Half of that will be added to the profit line and the rest reinvested into the company, including R&D.
Industry observers say Hurds bigger challenge will be shaping the companys business strategy to keep it from getting squeezed by competitors such as Dell Inc. and IBM.
“I dont quite get what else the restructuring does [besides save money] for the rest of the company,” said Charles King, an analyst with Pund-IT Research Inc., in Hayward, Calif. “When you get rid of one in 10 people, you should take the opportunity to say why this is going to make [HP] a better company, and I didnt see that.”
Hurd said cost cutting is only part of the equation. “We have to grow our company … and deal with competitive forces. At the same time, we need to be efficient on the cost side,” he said.
HPs slashing expenses was no surprise. After ousting former Chairman and CEO Carly Fiorina in February, HPs directors said they liked the companys strategy but worried about execution. In addition, Hurd had said getting operations under control was a priority.
Customers supported the restructuring, relieved that the bulk of the HP sales force and technicians will be untouched by the layoffs and that HP will continue to invest in innovation.
“If you take a look at where theyre doing the cuts, its in the back office,” such as human resources and finances, said Charles Orndorff, vice president of infrastructure services at Crossmark Holdings Inc., in Plano, Texas. “It, hopefully, will empower the people who work with the customers the most.”
David Nardi, senior systems administrator at The Yankee Candle Company Inc., said his worry is that the HP technicians who work on his servers would change. “When [HP] bought Compaq, there was a big impact here because we saw new faces who didnt know our stuff,” said Nardi in South Deerfield, Mass. “We kind of pray that none of [the layoffs will] come up here. Were extremely happy with the [technicians] that we get.”
Chris Foster, an analyst with Technology Business Research Inc., in Hampton, N.H., said the restructuring, combined with other moves by Hurd—such as separating the PC and printing businesses and hiring chief information and chief marketing officers—give the CEO greater visibility into the three business groups.
That will be important as HP battles Dell in markets such as PCs and printers and IBM in services, software and high-end systems. The latest PC market-share numbers from research company IDC, of Framingham, Mass., show Dell extending its lead over HP. In addition, Dell is beginning to chip away at HPs massive lead in the printer business.
HP executives said they are taking a hard look at the companys product portfolio, adding that HPs innovation will be a key competitive edge going forward. Vyomesh Joshi, executive vice president of HPs $24 billion Imaging and Printing Group, pointed to the rollout earlier this month of new printing technology, the result of a five-year, $1.4 billion project. Joshi said the company will continue to invest in research in areas such as digital photography, ink-jet technology and high-end copiers.
Shane Robison, HPs executive vice president and chief strategy and technology officer, said advancements in services, software and storage also are key goals. What the company isnt considering is eliminating any of its businesses, as many analysts have urged, Robison said.
“Most of it is just [speculation],” he said. “We have no plans to spin off any of the businesses.”
John Spooner, senior writer at eWEEK.com, contributed to this report.
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