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Hewlett Packard Slashes Jobs: Can Meg Whitman Save H-P?

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Can Meg Whitman save Hewlett Packard?

The former eBay executive who was hired as H-P chief last September announced the company would lay off about eight percent of its 300,000 workforce over the next two years, one of many changes that are coming to the troubled personal computer and printer maker. Wall Street responded positively to the news, pushing H-P stock (HPQ) up more than five percent early Thursday morning.

The layoffs, which are expected to save H-P $3 billion to $3.5 billion annually, are just one phase of a restructuring designed to deemphasize the relatively low-margin PC and printer business and instead focus on the more promising cloud computing services.

H-P said its profit in the last quarter fell 31 percent from the same period a year ago and revenue declined three percent. The company reported net income of 80 cents a share in the second quarter compared with $2.3 billion, or $1.05 a share a year ago, above analysts' expectations. H-P also raised its full-year earnings-per-share outlook largely due to the expected savings in personnel cuts.

With the stock having dropped 40 percent over the last 12 months, the Street's positive response to the earnings release had less to do with the numbers and more to do with H-P trying something else.

Whitman addressed the layoffs in a conference call with reporters, saying they "adversely impact people's lives, but in this case, they are absolutely critical to the long-term health of the company."

In a note to clients, research firm Ovum wrote "HP's restructuring is painful but necessary in order to restore market and customer confidence after two years of turmoil. What's somewhat encouraging is HP's indication that most restructuring savings will be directed toward R&D — a part of HP's legacy and history which the company has sorely undervalued in the past few years, but which will be a critical component of HP's recovery in new product and service development…the key missing piece is [Whitman's] long-term company vision and strategy, which hopefully will be revealed to an anxious customer base soon. Even with this restructuring, the question still remains: Just what kind of company does HP want to be next year, three years, five years from now?"

Analysts and industry insiders have noticed the new direction Whitman has taken the company in the few months since she took over at H-P. She jettisoned the company's plan to spin off its PC business, an idea heavily promoted by her predecessor, former CEO Leo Apotheker. Here's the ultimate question for investors: Can Whitman stabilize the company and transform it from a listing computer and printer maker back into a technology juggernaut?

As Aaron Task and Jeff Macke point out in the accompanying video, H-P has been in a 10-year slump. Earnings are shrinking, margins are down and the company is positioned poorly compared to its competitors. Whitman may be the last chance for H-P to reverse its downward trajectory.

"They're moving forward as opposed to trying to maintain this dominance," Macke says. "We've gotten rid of all the legacy on the board. We have grown up management now."