Hewlett-Packard Wednesday delivered a double-barreled buckshot of bad news: disclosing that it plans to slash 27,000 jobs, or about 8 percent of its work force, and that its cloud computing mainstay Autonomy experienced a "significant decline" in license revenue.
If that weren’t enough, HP disclosed that Mike Lynch, Autonomy co-founder and executive vice president of the company's information management division, is leaving the company after a “transition period.” Bill Veghte, HP's chief strategy officer and executive vice president of HP Software, will step in to lead the unit.
Wall Street analysts were expecting HP's layoffs, but some channel partners interpret Lynch's departure as a sign that HP's oft-criticized $10.3 billion acquisition last year of Autonomy, a centerpiece of former HP CEO Leo Apotheker’s one-time plan to transform HP into a software power, is not on track.
The change in leadership at Autonomy is a "sign of confusion" around the big HP cloud computing bet, said Bob Venero, CEO of Future Tech, a Holbrook, N.Y., an HP enterprise partner.
"There were major questions in partners' and stockholders' minds about the amount of money HP paid for Autonomy and the rationale behind the acquisition," said Venero.
Thus far, neither HP nor Lynch has explained why the founder of Autonomy is leaving the company. Venero believes such a clarification would calm customers, partners, investors, and HP employees.
HP CEO Meg Whitman, for her part, is still bullish on the prospects for Autonomy. "The market and competitive position for Autonomy remains strong," she said during the company's second-quarter earnings call, adding that it will take a few quarters before any tangible improvement will be seen.
As for the layoffs, HP said it will cut 9,000 positions in fiscal 2012 with the balance of the 27,000 cuts being made by fiscal 2014. HP said its restructuring will ultimately save the company between $3.0 billion and $3.5 billion by the end of fiscal 2014.
Venero said HP must clearly communicate where the cuts will take place. “You can’t cut close to 30,000 people and have zero impact,” he said. “It just doesn’t happen. That many people leaving the company amounts to a small town. The message from HP to its partners and customers is going to need to be very well defined as to where those layoffs are coming from and what the potential impact is going to be.”
Venero said in his 17 years at the helm of Future Tech he has only seen comparable turmoil from one of his top partners once before: when HP and Compaq merged in a $19 billion deal, one of the biggest ever in the history of the computing business in 2002. That said, Venero gave Whitman, who he met at a partner roundtable several months ago, a vote of confidence.
"We are seeing the re-evolution of HP," said Venero. "If the words that Meg says are backed by actions that we are seeing, then I believe that HP with its capital, investment portfolio, employee base and its customer base has the ability to absolutely evolve into one of the top players in the market again. Remember, Rome wasn’t built in a day."
Rick Chernick, CEO of Camera Corner Connecting Point, a Green Bay, Wisc.-based HP partner, said HP and its partners are being hammered by margin pressure.
“The bottom line is it is tough out there in the IT market right now,” he said. “The margins are being squeezed. We are all trying to survive. We are in survival mode all the time. If you are a small business, you are always watching the bottom line and trying to figure out what you need to do to stay in business. HP is going through the same thing. They are just bigger. We are all trying to reinvent ourselves all the time. It is always an evolution in this business, and it happens so fast. It is tough for all of us.”