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Whitman swings HP axe after second quarter dip

Meg Whitman

Palo Alto: HP outlined plans for a swingeing restructuring plan designed to "simplify business processes, advance innovation and deliver better results for customers, employees and shareholders", after it reported a 3% dip in second quarter revenues yesterday.

Financial highlights of HP's second quarter to 30 April 2012

  • Revenue was down 3% to $30.7 billion
  • Pre-tax earnings were $1.97 billion, down from $2.89 billion in the same quarter of 2011
  • Services revenue was down 1% to $8.83 billion
  • Services pre-tax earnings were $997 million, down from $1.37billion in the same quarter of 2011
  • Services operating margin was 11.3% in the quarter.

HP said the restructuring is expected to generate annualized savings in the range of $3.0 to $3.5 billion exiting fiscal year 2014, of which the majority will be reinvested back into the company. HP expects to use the savings to boost investment in innovation around its three areas of strategic focus: cloud, big data and security, as well as in other segments that offer attractive growth potential.

As part of the restructuring, HP expects some 27,000 employees to leave the company, or 8.0% of its workforce as of Oct. 31, 2011, by the end of fiscal year 2014. The company is offering an early retirement program. Workforce reduction plans will vary by country, based on local legal requirements and consultation with works councils and employee representatives, as appropriate.

"These initiatives build upon our recent organizational realignment, and will further streamline our operations, improve our processes, and remove complexity from our business," said Meg Whitman, HP president and chief executive officer.

"While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long term health of the company. We are setting HP on a path to extend our global leadership and deliver the greatest value to customers and shareholders."

HP said it expects to reinvest savings in each of its business segments to strengthen their ability to stay ahead of customer expectations and capitalize on growing market trends.

Services will invest in accelerating service capabilities in the high client value areas of cloud, security and information analytics by enhancing HP intellectual property. Services will also strengthen its industry orientation and continue to differentiate its service offerings through quality and innovation delivered to clients. Combined, these activities are expected to shift the portfolio to a more profitable mix of higher-growth services. Additional work in lean process methodologies is expected to better serve clients and increase overall efficiencies.

HP's second quarter Services business revenue

Services line Revenue — $ billion Change
Outsourcing 3.66 -3%
Technology 2.63 0%
Application and Business 2.52 +1%

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