Sweeping Reorg Expected At HP

Hewlett-Packard is expected to launch a much-anticipated restructuring next week, according to several reports and Wall Street analysts. Staff reductions could be anywhere from 5,000 to 25,000 employees, though most reports suggest a figure in between.

While HP is not commenting, Mark Hurd, the company's new president and CEO who is known as a cost-cutting executive from his long career at NCR, has long been expected to make major cuts, though some thought they would come later this summer.

S&P Equity Research issued a report saying it had anticipated the restructuring wouldn't come until next month, after HP reported its third-quarter earnings for the period ending July 31.

"We believe layoffs will total some 15,000, and the focus will be in the enterprise unit, which carries lower margins than peers," according to the S&P report, adding it is hopeful that savings from the restructuring will yield benefits by the end of the year.

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Cindy Shaw, an analyst at San Francisco-based Moors & Cabot Capital Markets, a specialist in HP and IBM on the Boston Stock Exchange, issued a report Friday that said an announcement next week is likely based on data points provided from a "Silicon Valley source."

"We think the cuts will be broad-based," Shaw wrote, adding that it appears likely that enterprise servers and storage (ESS), software and IT will be "disproportionately affected," based on Hurd's comments during HP's last earnings call in May that those businesses' cost structures were "off benchmark." R&D is also likely to take a hit, the report said.

The cuts are much needed, wrote Bear Stearns analyst Andrew Neff, in a research report released Thursday. The report said HP has to get its cost structure in line "with the new reality," by taking unpleasant actions as quickly as possible.

"In our view, HPQ has a cost structure that is, to a large extent, a holdover from its 'growth phase,'" according to the Bear Stearns report. "The legacy cost structure has been one of the reasons that HPQ has not been able to react to competitive challenges, since HPQ had less margin than its competitors to play with."

What these moves mean to the channel remain to be seen. But when HP cut its ESS field sales force last year, it had a negative impact on partners. Having announced its largest storage refresh in May and added several products this month, partners, no doubt, will wonder what impact any reorganization and personnel cuts will have on that business.

Whether any business unit, including printing and imaging and PCs, are spun off or sold is unclear as well.

In a move that will certainly help the company improve its own internal operations and supply chain, HP did score a coup this week by snagging away CIO Randall "Randy" Mott from Dell. Mott will serve in that same capacity at HP as executive vice president and CIO. Prior to his five-year stint at Dell, Mott was CIO of WalMart, where he is credited with automating much of the retail giant's processes, which have made it one of the leading IT customers today.