Analysts see major HP changes from the Hurd effect

Major changes in HP's workforce could be coming in the next few weeks as new CEO Mark Hurd settles in.

New Hewlett-Packard Co. (HP) President and Chief Executive Officer Mark Hurd has made several organisational changes since arriving at the company, but he's just getting warmed up in the minds of many analysts who follow the company.

Hurd has tweaked HP's organisational structure in the three months he has been on the job. Monday, HP announced that it is hiring a new chief information officer to run an IT department that will now operate independently from the company's supply chain group. In June, he separated the PC and printer groups that were combined by his predecessor, Carly Fiorina, in January. He likewise separated a global sales role and a chief marketing role in organisational moves this quarter.

But all indications are that further changes are coming. Financial and industry analysts expect HP to lay off thousands of workers in the coming weeks as the company continues to search for the right structure and operational model while still digesting the 2002 acquisition of Compaq Computer. Estimates published in research notes from Sanford C. Bernstein & Co. and Merrill Lynch & Co. following introductory meetings with Hurd range between 7,500 and 15,000 workers.

An HP spokesman declined to comment on the reports, or the possibility of forthcoming layoffs at the company.

"They've got some very difficult and potentially ugly decisions to make over the next year," said Charles King, principal analyst at Pund-IT Research in Hayward, California.

Essentially, HP is at a crossroads in its history, King said. The company's size is right in between its major rivals, IBM and Dell. HP has 150,000 employees worldwide, compared to 57,600 at Dell and almost 320,000 at IBM.

Many of those workers are finding their roles changing as HP moves from a company driven by extensive research and development to a company more reliant on low-margin businesses like PCs and low-end servers. For example, HP used to design its own server processors, but now relies on chips from Intel and Advanced Micro Devices for those markets.

"The company is evolving into something that [co-founders William] Hewlett and [David] Packard wouldn't have considered or even recognized," King said. "The profit margins are notoriously slim in those markets. If that's the strategy they want to pursue, they've got to get every bit of fat out of their workforce."

Those changes are expected after several quarters of solid, but unremarkable performances from the company's main businesses. As noted, the PC and server businesses are not generating the profits that management or shareholders expect of HP. And even the printer group, the crown jewel of HP's operations, has received notice that it is not immune from Hurd's cost-cutting eye.

Certain HP employees were offered a severance plan earlier this year and about 2,000 people accepted, mostly in the printing and imaging group, the company said. In an interview, printer chief Vyomesh Joshi said that the layoffs reflect a changing HP printer business as the company goes after more lucrative markets such as color laser printing and de-emphasizes older products.

Hurd has a history of cost-cutting at his former employer, NCR, which many analysts believe was an important factor in the decision of HP's board to bring in Hurd following the dismissal of Fiorina. She was seen by many as a hands-off visionary leader, while Hurd's pragmatism and knack for the bottom line seemed to foreshadow the expected round of job cuts, analysts noted.

Some customers and employees are worried that a leaner HP would be unable to invest in new product research that would set the company apart from Dell and IBM. However, companies that are struggling have to sometimes cut costs to get back on their feet, said Gordon Haff, senior analyst with Illuminata in New Hampshire.

"Organisation is as much an art as a science. Whatever your fundamental philosophy is, you can't lose big sums of money, because [HP] needs that money to innovate," Haff said.

New chief executive officers that are not promoted from within are generally accorded a longer period of time to learn the company's businesses and implement change, said Richard Doherty, principal analyst with The Envisioneering Group in Seaford, New York.

"There are very good signs that [Hurd is] fairly happy with the team he's got," Doherty said, noting that Hurd recently hired two tech industry veterans in new PC boss Todd Bradley and new Chief Information Officer Randy Mott, instead of bringing people over from NCR, his former company. Similarly, only one of HP's most senior executives, former senior vice president of marketing Allison Johnson, has left the company since Fiorina was dismissed in February.

HP will hold major customer conferences in August and September, at which point HP might look like a very different organisation. The company's second fiscal quarter will close at the end of July, and historically companies tend to announce major layoffs right around the end of a quarter.

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