HP’s multi-year restructuring plan focuses on “new style of IT”

Market Realist

Overview: Hewlett-Packard's 3Q14 earnings and strategies (Part 2 of 14)

(Continued from Part 1)

Multi-year restructuring plan

In May 2012, under the leadership of CEO Meg Whitman, Hewlett-Packard (or HP) (HPQ) initiated a multi-year restructuring plan.

In the words of HP’s President and CEO “We’re gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape.”


Simplifying organizational structure

As a part of its restructuring plan, HP wants to simplify its organizational structure. This would facilitate innovation, improved decision making, and cost reduction. This would benefit HP in the long term.

New style of IT

To achieve long-term growth, HP has identified key growth areas in various operating segments. It will mobilize its resources for the effective transition. To increase the Enterprise group’s growth, HP will transition to a converged infrastructure and cloud solution. This is part of its new IT product initiative. It will also focus on detailed market segmentation. HP will align its products towards region-specific demand.

Cost containment and layoffs

According to the restructuring plan, HP will streamline its operations and keep costs under control. As a result, ~34,000 positions will be eliminated. However, these figures have now increased to 11,000–16,000. Some product lines will be discontinued in 2014. This will increase the total layoff base to 45,000–50,000.

New product offerings

To push itself in the market, HP has increased its investment in research and development. It has developed new products in cloud, storage, and the “big data” space. HP Helion, 3Par storage, and Moonshot servers will tackle the challenges posed by social, mobile, analytics, and cloud (or SMAC). Also, the HP shark system includes some of the products that cater to cloud, storage, server, and “big data.” SMAC services represent enterprise computing’s next evolution.

Increase in research and development

HP is continuously increasing its investment in research and development (or R&D). HP spent 2.3% of its revenue on R&D. It increased to 2.8% in 2013. Compared to its peers, HP’s expenditure on R&D is very low. Microsoft (MSFT) spends ~13% of its revenues on R&D. IBM (IBM) only spends 5%–7% of its revenues on R&D. SAP (SAP) spends ~13%–14% of its revenue on R&D. Salesforce.com (CRM) also invests heavily in R&D. HP’s CEO has stated that the company prefers investing in R&D over acquisitions.

Through streamlining its operations and implementing cost reduction plans, HP plans to invest its savings in cloud computing, “big data,” analytics, and security.

Continue to Part 3

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