While it's true that at one time smaller meant leaner, with tighter focus, those days are done. Today smaller just means smaller.
Most of the cuts are due to come in what are called "enterprise services," including the old EDS unit, mainly through early retirement of people who have built careers on client-server platforms.
That means reducing work on what customers are currently doing and putting money into what HP thinks they will do in the future, cloud and cloud applications.
Meanwhile, by continuing the regular dividend, HP yields 2.18% at its pre-market price of $22.06. It means there is limited downside in the shares in the near term.
Do investors buy into this? HP's PE is now down to 7.78, close to the 7.94 of Dell (NASDAQ:DELL) and approaching the 6.24 of GM (NYSE:GM). What stock buyers want right now is new stuff, new ideas, and if you don't have them they won't even value your earnings.
The problem is that HP doesn't seem to have any new ideas. Its product line of PCs and printers is essentially 30 years old. It's cutting jobs in the area where it makes the most profit, and cloud hardware is all about using commodity hardware efficiently, rather than the high-end servers HP is known for.
With employee morale due to hit another all-time low, Whitman has very little time to bring the company back. Combining the PC and printer divisions could, in time, create a company that can be spun-out profitably, but how much would it lift HP's stock price?
The company still has the capital base to go after a cloud company such as Rackspace (NYSE:RAX) or Red Hat (NYSE:RHT), but even now that might require stock worth up to 20% of the company, plus a hefty chunk of the company's $8 billion in cash. That would also force HP to cede control of the company's direction to the new subsidiary.
Another direction Whitman could take is to invest more heavily in Autonomy, which already had a large private cloud two years ago when HP acquired it for $10.3 billion. So far the parent has not torched Autonomy's close-knit management team, which is a good thing.
Throwing thousands of people over the side is, at best, a short-term play that must be followed up. With what? That's what HP stockholders are asking themselves. The company remains a hold for most, but a weak one.