HP CEO Meg Whitman: No More Cuts
Hewlett-Packard CEO Meg Whitman says there has been no significant change in her outlook for the company’s prospects for a turnaround, but the company must be run in a more efficient manner. To that end, it will fire between 11,000 and 16,000 more people by the end of next year.
The layoffs amount to between three percent and five percent of HP’s overall headcount, which stood at 317,500 as of last October. The cuts were disclosed alongside HP’s second-quarter results and will boost the upper end of jobs eliminated at HP since Whitman took over as CEO to 50,000. It also amounts to the third upward revision to job cuts announced as part of the corporate-wide restructuring plan first announced two years ago.
During a conference call with analysts, Whitman said the cuts would be across the company, and would affect all geographic regions. CFO Cathie Lesjak said the cuts will save about $1 billion in HP’s operating costs by fiscal year 2016.
In an interview with Re/code, Whitman and Lesjak both said this is it. There will be no more revisions to this restructuring program. Whitman also said she feels ready to make the long-hinted-at acquisition she’s been mulling and now has $15 billion to spend on. But she dropped no hints as to what her preferred target is.
Re/code: Meg, by my count this is the third upward revision in the number of jobs you’re going to cut, and the total could come out to as many as 50,000 people. What’s changed since you first started cutting and said you thought 30,000 was the right number?
Whitman: It is the third increase in the number of people we’re cutting and it has to do with an increase in the opportunity to run the company more effectively and efficiently. This company has been through a lot of acquisitions, including Compaq in 2002 and EDS in 2008 and 17 different software acquisitions. If you just look at how we do things, it’s not as efficient as it needs to be, whether it’s in marketing or sales operations or frictionless e-commerce. And by the way, it clarifies decision-making so that we can move much more quickly and nimbly. The longer we’re here the more clarity we achieve. And we’ve been pretty clear with the Street when we’ve thought this might happen.
Lesjak: And that’s the point we’re at. There isn’t going to be an additional cut. This is it for the 2012 program. We will take the final charge in 2014. We expect 41,000 to leave during the year and a few more will leave in 2015.
So most of it will be complete this year. And you expect to save about $1 billion by fiscal 2016. Any charges you can tell me about between then and now?
Lesjak: We will get to a run-rate savings of $1 billion by fiscal 2016, but it will ramp. We’ll get a full year’s savings in 2015 on the people leaving in 2014, and then the few that will happen in 2015, we’ll get a full year’s savings in 2016. We will quantify it all at the analysts’ meeting in October.
Meg, you still seem to be making the case that there’s more work to do, more fixing to be done to things that happened at HP before you were CEO. Is that right?
Whitman: Yes. It is a vast company. And remember we’re only two and-a-half years into the five-year turnaround and this is what often occurs. I have done this before, what appears to be the opportunity gets bigger with the more you see. And yes, there are costs that will come straight to the bottom line, but it’s really about how this company runs and about how effectively we can meet customer needs, how fast we can turn around quotes, and how fast our sales people can get access to data so they can make more effective sales calls. There’s just a whole host of things we can do better.
So you’ve been hinting about making an acquisition for awhile. Where are we on that?
Whitman: I think we feel comfortable now. We have no debt*, we’ve stabilized the company. You have to find the right asset that will help and that you’re willing to pay for. The valuations have been pretty high, though I would say they have come down quite dramatically in the last six moths, so that’s helpful. But it has to be returns-based and it has to be something that will help our strategy. One of the things that is great about HP is the innovation that happens here. You spend more on research and development and you actually get more innovation. Some of the things that I thought we might have to buy, we actually don’t. We are a machine when it comes to this stuff. We want to make sure that when we move, we move with the right company.
*Update: Whitman was clearly referring to HP’s operating debt here, which is effectively zero. HP carries a considerable amount of long-term debt, about $10 billion or so, to run its financing arm, the unit that handles equipment leasing, and also advances credit to HP customers so they can buy HP products. But what Whitman and Lesjak routinely refer to as “operating company debt” — the debt run by the main portion of the company not involved in finance — used to be a big problem, but now it’s not, as it has been paid down. After accounting for the debt of the finance operation, as Lesjak said on the conference call yesterday, operating company net cash was $2.7 billion. And if you want to dig deeper into the matter, here’s the slide from HP’s investor presentation yesterday laying it all out. (Click to make it bigger.)
Hat tip to Dan Primack of Fortune for calling it out.