Cutting 7,000 to 9,000 jobs will save the PC and printer maker $1 billion a year
HP Inc. will cut 7,000 to 9,000 jobs over the next three years as part of a larger restructuring plan aimed at saving the giant PC and printer vendor as much as $1 billion a year by 2022.
The Lowdown: Incoming President and CEO Enrique Lores laid out the company’s plan this week during a meeting with Wall Street securities analysts, saying in a statement that he’s taking “bold and decisive actions” and that the effort will create greater shareholder value.
The Details: With about 55,000 employees around the world, the job cuts mean that HP will cut its workforce by about 16%. The reduction will come through a combination of what the company calls “employee exits” and voluntary early retirement.
HP expects to incur about $1 billion in connection with the restructuring and other charges, with about $100 million coming in the fiscal-year 2019 fourth quarter, another $500 million in FY 2020, and the remaining $400 million split between FY 2021 and 2022.
Other points in HP’s plans include increasing its dividend by 10% and spending another $5 billion for future stock buybacks. The company is anticipating generating free cash flow of at least $3 billion in FY 2020, when it expects to return at least 75% of free cash flow.
The changes come as HP’s PC business has seen an uptick – with sales up 3% in the latest quarter – despite continued stagnation in the global PC market, but also as sales in its massive printer business have slowed.
The Impact: HP told Bloomberg that changes are coming to its printer business, with a greater emphasis on providing more services, and that prices for printers that can use non-HP ink cartridges will go up. In the printer business, the systems themselves make little profit and sometimes are sold at a loss, with profits coming from such items as ink, toner, and paper. The move to increase prices on some printers is aimed at making them more profitable.
Background: The announcement of the restructuring plan and included job cuts comes just more than a month after HP said that Lores would be taking over as president and CEO, replacing Dion Weisler, who has led the company since the 2014 split of Hewlett-Packard, which created HP – which sells PCs and printers, as well as other consumer-focused products – and Hewlett-Packard Enterprise (HPE), which focuses on enterprise IT. At the time of the announced changeover – Weisler will leave the company Nov. 1 – Lores already was leading a review of HP’s strategy and business operations, with the plan to announce the results of the review Oct. 3.
HP in August already had announced a reorganization of its go-to-market efforts, but it was unclear what other changes might be coming from Lores’ review.
The Buzz: “We see ourselves starting a new chapter for HP and we will be announcing bold moves to support that statement,” Lores told Bloomberg in an interview. “We have spent a lot of time building this plan. We can embrace the changes we see happening in the market and that can help us position the company for the future. … We are really confident about the future of the company.”
“I’m proud of the progress we have made across our business with cutting-edge innovation, disciplined execution, and a purpose-driven culture,” Weisler said. “I have no doubt our team will keep raising the bar under Enrique’s leadership.”
“In FY19, we continue to deliver on our financial commitments, with consistent company-level performance, non-GAAP EPS, free cash flow, and return of capital,” HP CFO Steve Fieler said. “I’m confident in our ability to execute with the multiple levers we have to drive profit and create value in our businesses.”