HP Already Operating as Two Companies, More Restructuring (Layoffs?) Coming

Following a self-imposed three-day shutdown earlier this month, Hewlett-Packard (HPQ) has divided its internal systems to effectively operate as two separate companies–one focused on PCs and printers and another on enterprise business–more than two months ahead of its November 1 formal split date.

HP chief executive Meg Whitman, speaking on the vendor’s earnings call late last week, said the operations and IT systems were “successfully split,” as of August 1 and included the input of customers and partners.

“This was an incredibly complex process, and the team executed very well,” Whitman said. “This separation required working directly with more than 3,500 customers and partners to prepare for the cutover. We successfully separated nearly 750 systems affecting 95 percent of our business with no issues,” she said.

“After shutting down for just three days to transition, critical operational systems across our business segments are now live globally,” said Whitman. “Customer orders are flowing through manufacturing, and shipments are in transit across our entire supply chain network. This was a huge accomplishment.”

As Whitman alluded, the shutdown included a temporary moratorium on shipping products to partners or customers from August 1 – August 6, according to a statement provided to ChannelBuzz.ca by HP Canada.

“During this time customers and partners will still be able to submit orders in the usual way,” HP said. “Those orders will be processed and fulfilled by either HP Inc., or Hewlett Packard Enterprise depending on the order. Orders placed between August 1 and August 6 are estimated to begin shipping on August 7,” the statement said.

On the earnings call, HP chief financial officer (CFO) Cathie Lesjak alerted analysts that the vendor, which took $401 million in separation-related charges in its recently completed FQ3 results, still has some additional restructuring left to do with HP Enterprise.

Restructuring invariably is shorthand for layoffs and Lesjak suggested as much. Some 3,900 people exited the company in FQ3, she said, and by the end of FQ4, HP could add another 5 percent to its prior total job loss estimate.

At its upcoming September 15 analysts’ briefing, HP said it will provide more details on exactly what it means by the “last restructuring for Enterprise Services,” as Whitman called it.

“Yes, there is a goal to reduce restructuring on a go-forward basis, and we’re going to talk a lot more about this at the Security Analyst Meeting,” Lesjak said, calling it “at least for the Enterprise Services business the last restructuring that we do.”

HP has enacted the separation into a financial head wind rather than the tailwind it undoubtedly preferred. The vendor’s sales have fallen in 15 of the vendor’s past 16 quarters and its FQ3 was no different as sales slid 8.1 percent from last year to $25.3 billion, slightly below analysts’ expectations.

Net income for the quarter slipped 13 percent from last year to $854 million. GAAP per share earnings came in at $0.47, well below the $0.50 to $0.54 a share prior outlook.

For the quarter, sales declined in five of HP’s six business segments, with the Enterprise Group’s 2 percent uptick in revenue the only bright spot. By comparison, for FQ3 PC sales fell 13 percent to $7.5 billion, printers dipped 9 percent to $5.1 billion, Enterprise Services slid 11 percent to $4.9 billion, Software tumbled 6 percent to $900 million and Financial Services declined 6 percent to $806 million.

HP pared its full year EPS outlook to $3.59 to $3.65 a share from the prior guidance it issued last May of $3.53 to $3.73 a share.

“The next several quarters we think are going to be pretty tough,” Whitman said.