Hewlett May Cut Thousands of Jobs

By Terril Yue Jones

July 16, 2005 12 AM PT

Times Staff Writer

HP: Retrench?

Computing giant Hewlett-Packard Co., which brought in a new chief executive amid management turmoil in March, is expected to announce wide-ranging cost-cutting measures next week that could include slashing thousands of jobs, according to financial analysts.

A large cut in its workforce of 150,000 would be a further blow to HP’s reputation as a genteel employees-as-family company.

Analysts say even the sacrosanct research-and-development budget at Palo Alto-based HP could feel the ax, which would be a shock for a company whose slogan is “HP: Invent.”

An HP spokeswoman declined to comment Friday on what she called “rumors and speculation.”

From the time Chief Executive Mark Hurd took over in March, analysts and investors have been watching for his first concrete moves after he announced, “I don’t think you’ll find me doing anything tricky.”

Hurd is known for cost cutting and for turning around NCR Corp., where he was CEO and which like HP has several technology divisions. As an outsider, analysts say, Hurd might be willing to take the drastic measures that HP’s critics advocate. His predecessor, Carly Fiorina, also came from outside HP. She was ousted by the board in February for failing to revive the company’s profit and stock price.

Hurd “is a guy who’s going to do things from a business perspective and try to accommodate and keep as much of the culture as possible,” said Harry Blount, an analyst with Lehman Bros. in San Francisco. “But to keep HP truly competitive against his competitors, he needs to get the organization right.”

Analysts said HP, in essence, would have to choose which businesses matter, especially as it works to protect its core printer franchise against fast-charging rivals such as Dell Inc.

Mark Stahlman of Caris & Co. in New York said he expected those areas to include server computers that run corporate networks; televisions, a business HP is just beginning to enter; and products and services for the so-called digital living room, which the company has made a cornerstone of its consumer strategy.

“They haven’t been able to carry the strategy through to the organization, which I believe is the reason they hired Mark Hurd,” Stahlman said. “Carly refused to do it. She wanted to keep strategy in an ivory tower.”

The company has gone through ups and downs since its $19-billion acquisition of Compaq Computer Corp. in 2002, surprising Wall Street by falling short of expectations in some fiscal quarters.

HP was overtaken as the world’s largest PC maker in 2003 by Dell, which along with IBM Corp. also has been chewing away at HP’s position in the market for server computers.

The dominance of the printer division -- long HP’s golden egg, providing 80% of the firm’s profit -- also has been eroded by Dell, which introduced printers in 2003. In the first quarter this year, HP’s share of the inkjet printer market fell to 35% from 47.4% in the same period in 2004. Dell’s rose to 15.6% from 1.5%.

Large-scale job cuts could be particularly painful for HP. Since its founding in 1939, the company has had a culture of job security, although the familial atmosphere was soured by thousands of layoffs during Fiorina’s tenure.

Cindy Shaw, an analyst with investment bank Moors & Cabot in San Francisco, projected job cuts of 15,000 to 25,000, citing what she would describe only as an industry contact.

“Head-count reductions would only be an incremental positive if they are above 15,000 employees,” Shaw said in a report Thursday to investors.

A reduction of 25,000 “is a magnitude that would be disruptive to the organization,” Blount of Lehman Bros. said. He said Hurd was likely to repeat what he did at NCR: move employees from back-office, non-revenue-generating positions to jobs in sales, marketing and support.

Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., expects job cuts of 7,500 to 15,000 and said some of HP’s 20,000 salespeople also could go.

Research and development also could be hit, as HP’s spending “is nearly $1 billion higher than the sum of its relevant competitors,” Sacconaghi said. He estimated that Hurd could lower HP’s annual $3.5 billion in R&D; spending by as much as $500 million.

Slashing R&D; would hurt the company, said Michael Cohen, Fremont, Calif.-based director of research for Pacific American Securities.

“The innovation in its printing division is the reason why it enjoys the premier brand name in printing,” he said.

Just Monday, HP had introduced a line of faster printers that resulted from a $1.4-billion investment over five years.

HP shares rose 32 cents to $24.94 on Friday, a 52-week high.

Also Friday, the company said in a regulatory filing that it had awarded Randall Mott, the new chief information officer it hired from Dell, a pay package worth at least $10.3 million.

(BEGIN TEXT OF INFOBOX)

Losing market share

U.S. inkjet printer market share

First quarter 2004

Hewlett-Packard: 47.4%

Lexmark: 21.2%

Epson: 17.5%

Canon: 12.4%

Dell: 1.5%

First quarter 2005

Hewlett-Packard: 35%

Lexmark: 20.2%