Hewlett-Packard (NYSE:HPQ) will cut a large number of jobs, with some sources putting the number at 25,000 and others putting it at 30,000. This represents about 8% of the company's workforce.
This is all part of a huge restructuring plan that the company plans to unveil very soon. The details of the restructuring will be available when the company reports its quarterly earnings. So far, what we do know, is that the company claims that it is not doing this in order to keep shareholders happy but rather to "make needed investments." In addition, the cuts will not all happen at once. HP reports an intention to cut the jobs over a long period of time, perhaps even as long as a year. This is contrary to certain reports that state that people closely involved in the restructuring plans claim that the restructure is due in large part to declining profitability. On the other hand, these people have also asked not to be named as plans are not final. Without knowing exactly who the sources are, it is hard to say whether or not this information can be trusted.
The company's Chief Executive, Meg Whitman, is determined to "turn the company around." Recently, HP has suffered a huge decrease in stock price, which means that new innovations may well be called for. Cuts made in HP's past were not concurrent with new investments, which is why, Whitman claims, they were unsuccessful. HP has also been a victim of sales declines due to the increased interest in tablets rather than in traditional desktop PCs. Perhaps the development of tablets is one of the "higher growth" areas that Whitman is interested in pursuing in order to get the company back on its feet. It seems to me that this would be the most sensible thing for HP to do if it wants to be a serious player in the industry and keep its position as one of the top technology companies.
What effects will this have on HP stock? Well first, it is interesting to note that when this information came to light, HP shares rose considerably. This means that investors are interested in the new idea and feel that it will make the company stronger in the future. However, the company has predicted further declines in its profitability as the year progresses.
HP competitor IBM is doing the exact opposite, in that it is creating new jobs. Online reports say that the company will soon create "several hundred" new jobs. The jobs, which will be created in Ireland, are part of a significant expansion of the company's activities in the area. To me, it seems that IBM is getting better at what it does while HP and other companies in a similar position continue to decline. As one of the few companies in the industry that is still able to expand, it may be one to keep an eye on.
In other news, the battle between HP and Oracle (NYSE:ORCL) rages on over the very obscure chip Itanium. This is in fact turning into a very serious problem for HP. Although the case has not yet begun the main premise is that Oracle decided to stop creating software that runs on the Itanium chip produced by Intel (NASDAQ:INTC), mainly because Intel itself may stop creating the chips very soon. HP, however, makes 15% EBIT profits on the sales of software containing those chips. Consequently, HP plans to take Oracle to court over the situation.
The extent to which the cessation of Itanium chips will affect HP has been a "closely guarded secret." Only recently has it come to light just what a big blow to the company this will turn out to be. Hence, Whitman's increased fervor to turn the company's fortunes around.
A look at HP competitors: Like HP, Dell (NASDAQ:DELL) is also feeling the effects of the increased interest in tablets. PC producers simply are not on top of the game anyway, and sales of these machines have declined significantly. The launch of Microsoft's (NASDAQ:MSFT) new Windows 8 OS was supposed to be the knight in shining armor for these companies, but many stockholders are far from optimistic that the release of this new operating system will have a significant impact on the fortunes of PC manufacturers. Worse than that, analysts think that it will be, at least initially, a disappointment. The time may have come to move away from PC manufacturing stocks.
Apple (NASDAQ:AAPL) for example, apparently plans to launch a new iPad called an iPad Mini toward the second half of the year. At this stage, however, this is merely a rumor that has yet to be substantiated by actual reports form the company itself. The claims may or may not turn out to be accurate, but the point is that Apple has the right idea, at least in comparison with Dell and HP. The future is in tablets and in inventing new tablets that people will want to buy. To keep up, PC manufacturers will have to change their tack.
For so long, Hewlett-Packard stood on top of the mountain with its competitors occasionally reaching high enough to touch its feet. This is just no longer the reality. The company has waited a long time to realize that tablets may simply replace PCs in a large way, and the worry should be that its entry into any kind of tablet work will be done too late. With little hope on this horizon, HP must hope to find itself a significant part of the computing trend that comes after tablets, but who knows what that's going to be. Steer clear of this one for now, and hope it can invest the money it is saving on lay offs into something that will yield profits in later quarters.
The stock is currently trading close to its 52-week low at $21. I anticipate HP will sink to $18 by next year, unless we see a new breakthrough from this company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.