HP Restructuring Looks Ahead to Compete

Company executives say cost cuts will pave the way to a better future for Hewlett-Packard, with a focus on software, services and storage.

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.

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"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."

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