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By | Ashlee Vance 18th May 2005 16:54

15,000 HP workers get nervous as analyst predicts massive job cuts

We miss you, Carly!

HP's new CEO Mark Hurd could order 15,000 workers canned in the very near future, according to a leading financial analyst.

"We expect that CEO Hurd will likely articulate his detailed plan for improving HP sometime over the next two months, and we do expect material workforce reductions - likely numbering 5 percent to 10 percent of the workforce (or 7,500 - 15,000 people)," wrote Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., in a research note issued today.

The analyst's warning comes one day after HP posted ho-hum second quarter results. Hurd, during a conference call after the results were released, voiced his plans to cut costs across HP. The CEO vowed to continue a workforce reduction plan already in place when he took the helm of the company on April 1 and said HP would likely record a $100m charge for cuts made during the current quarter. Hurd also threatened to chop jobs from the server and storage side of the business in order to increase its profitability.

HP and Hurd expect to give a more complete vision of the company's direction "as soon (the) plans are finalized."

If Sacconaghi's track-record is any indication, HP will cut the full 15,000 and then some.

Last month, the analyst warned that IBM would likely fire 10,000 workers after having a bad first quarter. IBM one-upped Sacconaghi a couple of weeks later by saying it would go ahead and fire up to 13,000 staffers. Sacconaghi has made similar, accurate calls on other hardware makers such as Sun Microsystems in the past.

Overall, the analyst is bullish on HP, raising his per share target to $25 from $23.50. The job cuts could result in an annual boost to earnings per share figures of between 20 cents and 40 cents, Sacconaghi said.

"We continue to view the risk/reward surrounding HPQ as attractive - we think the stock is cheap with nearly $5 per share in cash; profit improvement opportunities abound, Q3 estimates provide potential for upside, and we believe that new CEO Hurd is worth betting on," Sacconaghi wrote.

The question, however, is whether or not an already battered HP can withstand a massive firing binge. Former CEO Carly Fiorina never recovered from the bad blood stirred up after she axed tens of thousands of jobs following the close of the Compaq acquisition. Beyond the morale cost, HP's famed engineering corps have been diminished, lessening the company's reputation as an inventive, R&D powerhouse. The HP brand might not stand another major cut. HP is still rich in talent, to be sure, but how long will the old hands be willing to hang on in this environment?

Hurd made enemies quickly during his brief run as CEO at NCR where outsourcing jobs and thrusting severance packages on well-paid senior staffers were common practices.

Will Hurd fight the urge to trim HP to the bone or will he be ruled by EPS? The answer, it seems, is already in. ®

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