HP to Cut 34,000 as Prospects Falter — Future Looks No Better

In the document, management wrote:

Due to continued market and business pressures, as of October 31, 2013, HP expects to eliminate an additional 15% of those 29,000 positions, or a total of approximately 34,000 positions, and to record an additional 15% of that $3.6 billion in total costs, or approximately $4.1 billion in aggregate charges. HP expects to record these charges through the end of HP’s 2014 fiscal year as the accounting recognition.

The announcement can be taken two ways. The first is that HP’s future is worse off than outsiders previously believed. The second is that CEO Meg Whitman somehow discovered 5,000 more positions she can afford to eliminate, compared with her earlier assessment. Given Whitman’s strength as a tech company executive, the first theory is more likely to be correct than the second.

Probably Whitman has discovered her largest single problem has worsened. Personal System sales dropped 10.2% last year as measured by net revenue. So, the company described trouble that has plagued HP for two years. PC buyers have shifted preferences from traditional desktops and laptops to tablets. HP does not have a tablet that sells well. But the trouble goes beyond the trends of the past. Recent research shows the shift to tablets has accelerated and has been joined by the use of smartphones as “PC replacements.” Whitman has run out of time in her plan to “reinvent” HP’s PC business, and trends have swept HP’s prospects away.

Whitman has taken the only logical path available to save HP, which is to move her emphasis on growth of product and service sales to businesses and government enterprises. The weakness of the plan is that sales in the units that make up this part of HP have continued to decline. Revenue at the Enterprise Systems group dropped 8.2%. Whitman blamed much of the decline on poor economic conditions. In reality, HP has a tidal wave of competitors in the sector, which includes more successful companies like Oracle Corp. (NYSE: ORCL) and International Business Machines Corp. (NYSE: IBM). Neither of these will let up on persistent pressure to take more business from Hewlett-Packard.

The truth of the matter is that Whitman had to find another 5,000 jobs to cut because HP has revenue problems across almost all of its businesses. That means the number of layoffs likely will continue to grow.