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HP Inc to lay off up to 6,000 staff, cut costs by $1.4 billion

‘Portfolio optimization’ plan aims to cull some PCs, sell more pricey subscriptions

HP Inc. has announced it will lay off between 4,000 and 6,000 staff as part of a cost-cutting drive aimed at adding $1.4 billion to its bottom line in coming years.

The PC and printer purveyor revealed the plan along with its Q4 2022 results, which saw $14.8 billion of revenue arrive – a year-on-year fall of 11 percent (and eight percent in constant currency) – and $1.3 billion of operating profit. For the full year, revenue dipped one percent to $63 billion and operating profit landed at $6.6 billion.

The company's printers delivered $3.7 billion of that profit on $18.9 billion revenue – rather better performance than the $2.9 billion profit from $44.1 billion of PC-related revenue.

President and CEO Enrique Lores described the results as "a solid end to our fiscal year despite navigating a volatile macro-environment and softening demand in the second half" but added HP needs a strategy – which he dubbed the "Future Ready Transformation Plan" – to find "significant structural cost savings through digital transformation, portfolio optimization and operational efficiency."

"Digital transformation" is automation and improved conversion from sales leads to cash.

"Portfolio optimization" looks to be an effort to chase growth markets and to clean up some messes created by COVID-19.

"During 2021 and '22 because of the component shortages, we … had to duplicate investments in boards, in many different parts, to compensate for component shortages," Lores said. Doing so meant HP Inc. created more product variants.

"This is clearly now an opportunity to simplify, to rationalize and to reduce investment in the cost side," Lores said. But he also hinted some product lines could go. "For example, in Personal Systems, there is an opportunity to significantly reduce our number of unique SKUs," he said.

HP Inc. also has a plan to sell more stuff by combining its own products with those of Poly – the company formerly known as Plantronics and Polycom before HP bought them for $3.3 billion – "while expanding in software and services to deliver differentiated hybrid work solutions for meeting rooms and home offices."

Gamers will be offered "seamless experiences across PCs, displays and peripherals." Business buyers will be the target for a "Device-as-a-Service offering tailored for hybrid ecosystems."

"We will also expand our consumer services offerings beyond Instant Ink to include new areas such as paper and print hardware" Lores told investors – then later let slip that consumer ink-as-a-service is more profitable than managed print services for businesses.

"Operational efficiency" was described as an effort to "reduce our variable spend and structural costs," and will see HP Inc. take on approximately $1.0 billion in labor and non-labor costs related to restructuring and other charges, with approximately $0.6 billion to land on the FY 2023 balance sheet.

Among those labor costs will be the payouts required to shed between 4,000 and 6,000 staff between now and the end of FY 2025. HP has about 51,000 people on its books, so that would be about a 12 percent cut, tops.

Lores said the savings from the Future Ready Transformation plan will be the main contributor to improved results in the second half of 2023, and the company will stop share buybacks to ensure it has cash on hand to cope with what the CEO predicted would be a "challenging macro environment" for the year ahead.

On the company's earnings call Morgan Stanley analyst Erik Woodring pointed out that this transformation plan is the successor to two previous rounds of cost cutting and asked if they went far enough.

Lores replied that the world has changed since HP's last cost cutting plan and that previous efforts set the company up to make positive investments in growth products.

Investors appear to like the new plan: HP shares popped a couple of percent in after-the-bell trading but remain more than $11 short of the stock's twelve-month high of $41.47. ®

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