HP contemplates cost cuts, ponders future course 4 January, 2007 By Paul Weinberg

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The company has already focused on weeding out 15,000 employees, but it is widely seen as needing to do more to eliminate business costs, Mark Hurd mentioned publicly in one press report late last year. "We still have a lot of work to do."

But Charles King, the principal analyst at Pund-IT Research, questioned if "at one point do layoffs start affecting the core competency or core capability of the company."

"[$100 billion] is equivalent of a small country. You might be able to make the trains run on time, but you want to make sure that your subjects are not utterly miserable. The other issue, is -- if HP can get some of its channel partners to start doing some of the work that the company itself used to do, that allows you some leeway in keeping or retaining or letting go of employees."

So far, conceded King, HP's financial performance has not been adversely affected by the past layoffs.

"You have got Mark Hurd saying there is still lots of fat that can be cut out of the company. That is an interesting statement, if he can do it. More power to him. But if he can do it and the company can stay effective, it suggests to me that the company was running extremely inefficiently, under [his predecessor Carly Fiorina]."

Meanwhile, Chris Foster, an industry analyst at Technology Business Research, expressed doubts that further staff cuts will occur at HP. He suggested that Hurd is really talking about "reallocating human resources rather than reducing the total number of employees."

The CEO's actions will include reducing support for business lines being phased out and the hiring of direct sales specialists for corporate accounts, particularly for HP software and storage products, he predicted.

Foster has attended HP events where executives from large end user clients have complained about HP direct sales reps acting more like "order takers," than solution sellers.

"Customers told them [the HP sales reps] have not been aggressive enough in asking for business."

One of the knocks against HP has been its inability to fully take advantage of the "sterling" business computing products at Compaq following the merger of the two IT vendors more than a half a decade ago under Fiorina, stated King.

The Compaq purchase helped HP achieve dominance in the PC market but the latter company "never figured out what to do" with the enterprise systems group until recently, he explained.

"Mercury was the first multi-billion acquisition that HP made since the Compaq deal; and I believe it showed that HP was really serious about pressing forward with the enterprise systems or enterprise solutions group."

A player in the management software market, Mercury has competed head-on with the likes of CA and IBM, both of which carry similar products.

This HP purchase represents a trend of major systems, server and storage vendors buying up software companies, stated King.

"It seems to be more and more the differentiator -- that systems, server and storage vendors are using [software] to shine their products with."

Although HP may have edged past IBM in revenues the comparison between the two may be akin to mixing apples and oranges.

King pointed to the fact that half of HP's revenue and most of its profits still stem from its printing and imaging business.

"IBM has a far more sophisticated services organization than HP or other competitors. [The former] has a far deeper product set in the server space, and far deeper storage products than HP does. IBM does make printers but they are of industrial quality.

"Dell has really profited and succeeded over the years due to the fact that the company was really able to ring every last penny out of an extremely efficient supply chain process. But they do not have the kind of revenue generator, any product or group within Dell that's been a revenue generator [parallel to] HP's printer systems."

King also noted HP's success in making peace with channel partners. He suggested the past conflict stemmed from HP's high profile presence in the major technology and entertainment products retail outlets across North America.

The price-cutting for PCs that HP undertook in the big box stores also reduced hardware margins for the channel partners, he explained.

"There was a lot of bad blood on the retail side. That bad blood needed to be cleaned up, and redirected."

HP has suffered from having "a schizophrenic public persona" between being a consumer and business systems organization, King added.