Wall Street has started salivating as it awaits word on new HP CEO Mark Hurd's plans for the company. Rumor has it that Hurd will hand down his proclamations any day now. The only move seen as certain? Mass layoffs.
The prospect of job cuts isn't a terribly fresh notion. Sanford C. Bernstein & Co. analyst Toni Sacconaghi in May speculated that HP would slash between 5 and 10 per cent of its workforce - or 7,500 to 15,000 staff - and in a new note issued this week, the analyst stuck by this prediction. Such cuts could save HP between $750m and $1.5bn per year.
"Given that CEO Mark Hurd is expected to announce his plans to improve HP's profitability and performance within the next month, we examined the potential levels available to Hurd," Sacconaghi wrote this week. "The primary source of cost-cutting is likely to come from headcount reductions acorss HP's business."
Numerous analysts share many of Sacconaghi's forecasts with some of them backing up the 15,000 mark. Such tremors stem from a promise Hurd made earlier this year to reduce the break-even point of HP's business units. The CEO - Carly "The Pink" Fiorina's replacement - told analysts to await his grand, sweeping plan for a revamp. Based on the various research notes and press quotations arriving this week, the pundits clearly think Hurd is about to preach.
Sacconaghi sees HP's Enterprise Systems Group and Services business units as particularly vulnerable to Hurd's axe. Combined, the two groups account for 70 per cent of HP's 150,000 workforce. Despite such strength in numbers, the units have been pounded by Dell and IBM. Along with the jobs cuts, the analyst expects HP to trim research and development spending, to cut advertising and to make use of pension and options programs to lessen the burden of pricey staffers - a tactic employed when Hurd ran NCR.
Such maneuvers do little to inspire employees in the short-term. HP staffers have faced the largest technology merger in history, eating a Compaq that had already been through huge, uncomfortable unions of its own. They then watched as Fiorina fired thousands, struggled to find her form and paid more attention to branding than delivering consistent results. Not the ideal recipe for high morale.
Several analysts, however, have no fear about the mental state of staffers and see the cost-cuttings moves as Hurd's obvious next step. Sacconaghi has HP with an "outperform" rating and pegged to hit $25 per share. Moors & Cabot today initiated coverage on HP with a "Buy" rating and a $29 price target. HP's shares closed at $24.50 - way up from a 52-week low of $16.08 posted under Fiorina and just pennies from the $24.70 52-week high.
First Albany stands out as the only analyst firm exhibiting any signs of immediate worry, downgrading HP to "Neutral" from "Buy."
"The way (First Albany) sees it, HP is heading into a tumultuous time where the company could lay off 10,000 to 15,000 employees, potentially creating near-term disruptions, decreasing employee morale and perhaps resulting in revenue losses," the Wall Street Journal reported.
So far, Hurd has been the pragmatic CEO many expected. He allowed an existing voluntary severance plan to move forward, cutting down on HP's Printing and Imaging unit. Then, he undid one of Fiorina's last actions by splitting up the PC and Printing and Imaging businesses and placing a new executive in charge of PCs.
Who is to say that Hurd won't be equally pragmatic with the job cuts and simply trim instead of cleave? While leading NCR, Hurd reduced the workforce by close to 5 per cent via the gradual culling of support staff, veterans and middle managers. Some part of him must know that a huge round of layoffs would crush worker spirit and make him nothing more than a penis-enabled Fiorina.
Here's hoping that some of the HP Way still runs through Palo Alto and that the frat boy will go easy on the pink. ®
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