HP changes offer little insight on strategy, say analysts

New Zealand branch isn't yet sure what local impact of cuts will be

In cutting about one-tenth of its workforce, or 14,500 jobs, Hewlett-Packard officials said the restructuring of the world's second-largest computer maker would improve customer service and accountability and do no harm to its research and development efforts.

Details of how the cuts are to be made aren't yet complete, however. Jeff Healey, HP New Zealand's corporate and enterprise marketing manager, says the company doesn't yet know what the local impact will be and doesn't have a date when it will know.

HP employs over 500 staff here, Healey says.

There was no indication from the company yesterday that the internal changes are a harbinger of any technological shifts by HP, which has already made many product changes in recent years. It has, for example, shifted its product lines toward servers built around the Itanium chip and away from some of its legacy hardware, such as the HP e3000 system and Alpha chips.

"Today's news was not about strategy," says Frank Gillett, an analyst at Forrester Research. "It was about making today's HP work better." As a result, he says, there was nothing to indicate how HP will compete with IBM or Dell.

Gillett says HP CEO Mark Hurd seems content so far to promote all of the lines of business HP already has — although Gillett joined other analysts in saying that supplying management software is a key strategic direction for the company.

"Software should be on the ascendancy at HP but is barely breaking US$1 billion [NZ$1.5 billion] a year for them now," Gillett says. "[Hurd] shares the view that management software is strategic to differentiating a technology vendor in the future."

HP says it hopes to save US$1.9 billion annually through the reorganisation and restructuring.

Charles King, an analyst at Pund-IT Research., says making HP's sales and marketing employees more accountable to the product divisions may be a plus for customers. But he wonders where all the cuts will come from, especially after earlier downsizing by the company.

The restructuring "may make HP a more profitable company; I don't know if it's going to make HP a better company," says King.

One analyst, Richard Ptak of Ptak & Associates, says the 14,500 layoffs "make good sense" but could hurt employee morale and productivity if stretched out too long. He also says he believes Hurd might actually cut more than 14,500 jobs in areas other than those announced this week, and he praises the decision to hold on to the HP software division.

The demise of Interex and the cancellation of HP World may be a sign that HP is focused more on software and services than on hardware, which is becoming a commodity in the IT world and hard to make a profit on, Ptak says. "That's not a good sign, " he says.

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