With no stake in the post-PC world, HP resorts to massive cuts

Hewlett-Packard was a no-show in the emerging world of tablets and smartphones. Now, those chickens are coming home to roost as computer sales slip, and the battered HP workforce will take another huge hit.

Welcome to Meg Whitman’s HP. Now that the new CEO has six full months under her belt, we have a good idea of where she wants to take the company. In a word: smaller. What’s more, HP’s tepid computer sales, which followed an even worse report by Dell, are yet more evidence that sales of tablets are eating into sales of conventional laptops.

Whitman is going to cut 27,000 employees, or about 8 percent of HP’s global workforce of 349,600 by fall 2014. But unlike the deep cuts engineered by Mark Hurd, the CEO who preceded both Whitman and Léo Apotheker, these cuts are not primarily designed to bolster profitability. “”Over time, savings will drop to bottom line, but majority will be reinvested,” Whitman said during a call with analysts and reports. The savings, estimated at some $3 billion to $3.5 billion a year, will go to what she called the company’s strategic pillars of strategic pillars of cloud, security, and information management.

It wasn’t clear which segments would contribute bodies to the overall body count, but Bloomberg reported that the enterprise services business, which expanded when HP bought Electronic Data Systems for $13.2 billion in 2008, would be hard hit. Not all of the headcount reduction will come through layoffs; the company will offer buyouts to volunteers.

Lack of mobile strategy is killing sales The news of the restructuring came as the company reported its second-quarter earnings. Those results were better than Wall Street had expected, but they were still poor as revenue, profits, and operating margins dropped year over year amid slumping demand for printers, data center equipment, and services.

HP, the world’s largest PC maker, struggled to sell computers, as did much of the rest of the industry. Market share gains by Apple, the growing use of tablets, and a hard drive shortage caused by flooding in Thailand all hurt sales. Although HP’s PC sales were tepid, at best, they were much stronger than Dell’s, which reported earnings on Tuesday. Sales by Dell to consumers were off 1 percent, with consumer notebook revenue down 15 percent. This week, Lenovo also forecast weakness in PC sales in North America and Europe.

Revenue for HP’s Personal Systems Group (PSG) was flat, year over year. Interestingly, sales of desktop PCs were up 5 percent on a unit basis, while laptop sales were off 6 percent, quite possibly as a result of strong tablet sales by other vendors. HP, of course, fumbled its entry into the tablet market, a major misstep that contributed to the downfall of Whitman’s immediate predecessor, Apotheker.

As you might recall, HP touted WebOS as the future of its entire computing lineup, shipped the mediocre TouchPad tablet six months later, and killed the WebOS project six weeks after that. Starting in mid-2010, Dell shipped several woefully bad Android-based Streak mini-tablets, becoming the poster child of an old-guard company that doesn’t get it.

Neither HP nor Dell shows an indication of engaging in the smartphone market, ceding that market and brand awareness to the Apple, Samsung, and the other mobile leaders. As for tablets, they’re banking on the forthcoming Windows 8 — like everyone else in the PC market.

That would be water under the bridge, I guess, but during the fairly lengthy earnings call, there wasn’t one mention by Whitman or her lieutenants about a mobile strategy other than the me-too Windows 8 strategy — not a good sign.

Software a bright spot for HP HP’s Imaging and Printing Group, which is merging with PSG, performed very poorly. Revenue declined 10 percent year over year with a 13.2 percent operating margin. Commercial hardware revenue was down 4 percent year over year, with commercial printer units down 7 percent. Consumer hardware revenue was down 15 percent year over year, with a 13 percent decline in printer units. One reason for the poor consumer sales, Whitman said, was a decline in the printing of photos at home by consumers, who are probably making more use of online photo-sharing sites.

Sales of servers, storages, and networking gear were off by 6 percent, and service revenue was off 1 percent.

By contrast, software revenue was up 22 percent, and revenue from financial services was up 9 percent. Interestingly, software was the one area that Apotheker wanted to focus on; he even publicly mused about selling off the company’s PC business. But Autonomy, his controversial $10.3 billion acquisition, did not perform well, and Mike Lynch, Autonomy’s founder and executive vice president for information management, will take the hit: He’s leaving and will be replaced by Bill Vehhte.

I have to say, Whitman sounded reasonably upbeat and on top of the situation, and the news that a majority of the money saved by the bloodletting will go to R&D and other internal investments is welcome. But without a mobile strategy, how will the company repair the terrible damage done to its sales and market position by the clueless Apotheker?

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