HP to ourpace the market in 2010

Hewlett-Packard executives expect sales of IT products to rebound in the coming year and they said the company is positioned to outpace the market and record overall sales growth between 3 and 4 percent in 2010.

"We think we have the best portfolio of technologies and services in the industry," said CEO Mark Hurd, speaking at a securities analyst meeting Thursday. "We're pretty well-positioned to go out in the marketplace and win. I think HP's best days are ahead of it, not behind it."

"Our current view is that the IT market returns to growth in fiscal 2010. And given the strength of our portfolio and ongoing investments in market coverage, we do expect to grow faster than the market," said CFO Cathie Lesjak.

HP is in the midst of its fourth fiscal quarter that ends Oct. 31. For the third quarter ended July 31, the company reported a 2 percent decline in sales to $27.5 billion and a 19 percent drop in earnings to $1.6 billion.

But the focus of the analyst meeting was fiscal 2010. Hurd said HP's addressable market, including PCs, servers, storage, printers, networking, software and services, is $1.3 trillion.

Hurd said he expects sales growth in the IT market to resume in 2010, then added: "We will grow faster than the IT market."

HP predicts that its sales in fiscal 2010 will reach $117 billion to $118 billion, up 3 to 4 percent over fiscal 2009, Lesjak told analysts. Earnings will be between $3.60 and $3.70 per share.

The CFO said HP is forecasting that sales from its personal systems group will grow between 3 and 5 percent in fiscal 2010, but sales from its imaging and printing group will be flat by up to 2 percent.

Enterprise systems and storage technology sales will grow between 2 and 4 percent in fiscal 2010, as will HP services. HP software sales will grow between 7 and 9 percent.

Hurd said HP's cost structure is "much improved from several years ago," but later added: "We don't quite have HP operating as effectively as we can." He said there is still "material opportunity for us" to improve the company's operating efficiencies.

One place HP is still cutting costs is in its EDS services unit, which it renamed HP Enterprise Services this week. So far this year, HP has cut $900 million in operating costs out of the operation through the company's integration efforts, Lesjak said, with plans to cut another $1.2 billion through 2010.

HP To Cut Loose its BPO Business

A recent Channel Insider article raised the concern that HP might sell off or shutter some of its outsourcing business. Specifically, the article speculated on the BPO operations that EDS brought into the firm as part of HP’s acquisition of EDS. BPO, business process outsourcing, describes the outsourcing of entire business processes, like accounts payable, to a third party with the objective of reducing costs and/or improving the performance/outcomes of those processes.

HP bought EDS back in May this year. Selling off assets, like the BPO practice, would seem like something that would have been done earlier than now. But, HP may not be happy with the lower returns that BPO offers. That was certainly one scenario that Channel Insider offered up.

(Fellow blogger Dennis Howlett offered up an assessment of the HP EDS merger here).

Why do companies decide to get out of recently acquired businesses? They do so because:

- the businesses do not ‘fit’ their strategic game plan
- the businesses are not healthy
- the businesses cannot return the margins that the company’s shareholders demand
- the economics of that business are really messed up by competitors’ pricing
- they do not understand that space or how to operate it well
- etc.

BPO is about scale and process delivery. The more scale, theoretically, the lower the operating costs. The better designed the processes, theoretically, the lower the operating costs and improved service levels for customers. However, BPO in practice doesn’t work the same as in theory. BPO deals often include a lot of one-off processing. Few ‘best practices’ or ‘best processes’ work well across industries or work well for every company. Too often, BPO solutions are not standardized and hence more expensive to operate than in theory. I suspect that most BPO solutions look more (and are sold more) like hosted applications than the standardized, multi-tenant applications offered by SaaS (software as a service) vendors.

Another issue with BPO deals concerns the ability of the outsourcer to dramatically improve existing processes and performance levels. Some deals essentially involve the transfer of systems to another firm. No step change in improvement occurs. Other deals promise a transition to new level of performance via new systems and process designs. These deals are expensive to implement as the change management, user training, and other costs drive up the BPO cutover costs for the user firm and the outsourcer. Finally, BPO providers who promise ‘continuous’ process improvements may find that getting a customer to one step change is expensive enough. Future improvements may be too costly to justify.

BPO providers also build their business on the use of third party ERP software. Guess what, those same BPO providers better have terrific pricing with those firms as license, maintenance and support costs for these products have been growing faster than inflation, consumer price index or reason.

But the use of ERP software may not be such a great thing for these BPO firms. If every BPO provider uses the same limited set of solutions with their limited (1980s) functionality, these solutions are not innovative or delivering unique value. This is especially true for back office (i.e., accounting and HR) applications. ERP and innovation are not words often found in the same sentence. Without innovation, value is hard to deliver.

BPO doesn’t have to be a low margin business, though. If outsourcers want to get higher margins, they need to offer something more than a commodity offering. Specifically, they need to offer innovation and value. The value must be more than low cost/pricing. Innovation must be more than process designs. BPO without innovation is a commodity. Without innovation, BPO is like any other business service: janitorial, vending, delivery services, etc.

If HP can spin off this business without taking a bath, they should use the funds to re-invent BPO. BPO today should be a service offered via a SaaS solution running with a PaaS (platform as a service) in a full multi-tenant world. BPO needs to fully embrace the cloud.

BPO-based processes need a huge infusion of innovation and it won’t be coming from the usual ERP suspects. Most of these firms have become large technology portfolio managers more interested in 43% operating margins on their maintenance base than in delivering something really new or different. These ERP firms are too vested in maintaining the status quo and not in delivering something really amazing. Their inattention to innovation is hurting BPO. Maybe, this is why HP is possibly running away from BPO….

HP Warns on IT Budges

Those expecting a return to pre-recessionary ordering patterns from data centre customers might have to wait slightly longer than they were expecting.

A warning was sounded by Iain Stephen, vice president of enterprise server and StorageWorks (ESS) UK and Ireland at Hewlett-Packard, as the vendor updated its blade and networking portfolio.


“I haven’t met a CIO or IT director that thinks their budget is going up in 2010,” he added “It is looking as if it is going to be as tough [as this year in terms of getting budget].”

As a result he said users would continue to look for cost savings by reducing running and maintenance costs.

But Stephen warned that delaying investment was not a decision customers could necessarily keep making as the existing infrastructure was aging and unable to cope with the increased demands.

“Most infrastructures were designed a long time ago, from two to ten years,” he said.

HP forces swingeing pay cuts on EDS staff

HP is asking US based EDS staff to take their third pay cut of the year - this time as much as 30 per cent of their salaries.

Staff in the UK and Ireland have already been asked to take cuts of up to five per cent, and have also been encouraged to take unpaid leave over the summer.

But The Dallas Morning News reports that EDS workers are being asked to take a third pay cut this year. In February wages were cut between 2.5 per cent and 20 per cent. In April, all US and Puerto Rico based staff had to swallow a further ten per cent reduction in pay.

HP said the most recent cuts were necessary in order to get EDS pay in line with HP's and would not hit all staff.

One of several unhappy EDS workers told the paper: "I know that my career with this company is coming to an end. I can't survive after this kind of hit."

EDS staff on this side of the pond have seen cuts in canteen subsidies, pension and car allowances as well as pay cuts.

In more bad news for the ink giant, it emerged today that problems with its in-house commission system, Omega (inherited from Compaq), mean that about 2,000 of its top sales people are not getting the right monthly commissions. And they've been getting the wrong amounts for most of the year, according to The Wall Street Journal.

The paper has seen a string of emails apologising to staff for the pay problems which began in November. On the 8 June an email promised a final fix to the system. Four days later a further email apologised again for continuing problems. HP told the paper it had problems with an application but: "we expect to have this resolved shortly...".

HP sent us the following statement: "As part of the EDS integration process, a project was undertaken to ensure that employees in both EDS and HP, holding the same roles, receive comparable compensation based on market rates. While pay will not be impacted for the majority of employees as a result of this process, some employees will receive pay reductions while others will benefit from salary increases.

We understand that these changes personally impact our employees and we are working closely with them during this transition. EDS is an integral part of HP’s long term strategy to provide more services and solutions to our clients."

http://www.channelregister.co.uk/2009/08/06/eds_hp_paycuts/

HP Warns Worried EDS Workers: Don't Go to Media

EDS employees in Plano are comparing their job security to that of an undrafted rookie trying to make the Dallas Cowboys roster.

Andy Mattes, the senior vice president of EDS Americas, addressed employee concerns about salary cuts and layoffs -- and warned workers not to talk to the news media -- in a podcast obtained by NBCDFW.com.

"A., this is not easy, and we as a management team appreciate that," Mattes said in the podcast. "B., if you're impacted, that is painful, and there is nothing that I can tell you that's going to make that pain go away."

Mattes began the employee town hall with a "legal disclaimer" that "anything that I do or say may or may not resemble the truth when it comes to forward-looking statements."

HP: If Leaks Continue, "You'll Get Whitewashed Statements"
HP: If Leaks Continue, "You'll Get Whitewashed Statements"
WATCH

HP: If Leaks Continue, "You'll Get Whitewashed Statements"

Mattes also urged employees to not speak with the media about their concerns. An EDS employee anonymously told NBCDFW.com last week that his salary was being cut by one-third.

"People have been leaking stuff into the news," Mattes said. "I can only urge you to keep the conversation that we're having here amongst ourselves. The more we can keep it amongst ourselves, the more open we can talk. If we have to get the feeling that everything that we do will show up in the newspapers tomorrow, you'll get whitewashed statements."

But several EDS employees said they feel information is already being whitewashed for themselves, as well as customers and potential clients. They said the warning against speaking to the news media is intended to keep issues of morale and the potential impact on customers quiet.

Employees say morale is low, anxiety is high and productivity is down as many workers spend part of their days on task and part of it searching for new employment.

Workers said they fear every day that they will receive a tap on the shoulder -- or an e-mail -- informing them their services are no longer required.

Hewlett-Packard, which bought the company last year, is relocating 150 information-technology jobs from North Texas to cities such as Austin, Houston and Atlanta.

"HP will transition IT resources from Plano, Texas, to other locations..." the company said in a statement. "All affected will be given the opportunity and financial support to relocate to other HP offices."

But employees described it as a take-it or leave-it offer from a company that is asking some employees to risk relocation while at the same time cutting salaries of EDS workers up to nearly 50 percent in some cases.

In the podcast townhall meeting about the company's new job architecture, Mattes said 20 percent of HP-EDS employees regionally have been impacted by the salary cuts.

He repeatedly said the changes are painful, but necessary and would have been worse years from now if the company had not taken steps to restructure in this economy.

HP spokesmen confirmed the 150 job relocations but offered no comment on Mattes' statements in the podcast or on questions about cuts and other issues.

Source:
http://www.nbcdfw.com/news/business/HP-Warns-Worried-EDS-Workers-Dont-Go-to-Media-53188707.html

HP To Lays Off 6420

On Tuesday, H.P., the world’s largest technology company, reported double-digit declines in sales across its major businesses in its second quarter. H.P. also said that it would cut about 2 percent of its 321,000-person work force, or close to 6,420 people, as it tries to reduce costs.

The layoffs are on top of the tens of thousands of people already being let go as part of H.P.’s acquisition of Electronic Data Systems, a large services company.

The computer and printer maker also issued a more pessimistic full-year revenue forecast. It now expects revenue to fall from 4 percent to 5 percent from the $118.4 billion reported last year, while it had previously predicted that sales would fall from 2 percent to 5 percent.

Mark V Hurd the chief executive at H.P., pointed to better sales in China and among consumers in the United States as the only two bright spots of note. Over all, however, he remained somber about the broad economic trends that affect the technology sector.

“I just think we are going to need another quarter of data to really make a meaningful statement about any upturn or anything like that,” Mr. Hurd said in a conference call with analysts to discuss the second-quarter results. “Our guidance is meant to be a sort of ‘steady as she goes.’ ”

H.P., with a broad range of businesses spread across the globe, serves as a bellwether of the technology sector. The forecast from H.P., the world’s largest PC maker, comes in contrast to the most recent forecast from intel, the world’s largest chip maker. Intel executives have maintained that the personal computer market appears to have reached bottom weeks ago and that market conditions are better than expected midway through the second quarter.

Catherine A. Lesjak, the chief financial officer at H.P., declined to issue any similar, upbeat remarks about PC sales, saying only that “demand looks a lot like it did last quarter.”

Investors appeared rattled at least in part by H.P.’s revenue forecast that reinforced sentiment that the economy is not yet improving. Following the release of the results, H.P.’s shares dropped close to 5 percent, during after-hours trading, to $34.81. Shares of H.P. had closed in regular trading Tuesday, up more than 2 percent at $36.58.

H.P. said net income in the second quarter ended April 30 fell 17 percent to $1.7 billion, or 70 cents a share, down from a profit of $2.1 billion, or 80 cents a share, in the same period last year. Excluding charges, H.P., based in Palo Alto, Calif., earned 88 cents a share for the period ended April 30.

H.P. surpassed the earnings expectations of analysts surveyed by Thomson Reuters by 2 cents, while its revenue matched expectations.

Like other hardware makers, H.P. has had big declines in its major businesses. Notebook PC sales fell 13 percent; computer server and storage sales tumbled 28 percent; software sales fell 15 percent and sales of printers and related technology fell 23 percent.

Given such circumstances, Mr. Hurd focused on H.P.’s continued efforts to cut costs, allowing it to stay on pace with earnings expectations even while revenue was harder to find. The company reported record cash flow from operations of $5 billion in the quarter.

“The results do point to the stability of the H.P. model,” said Shannon Cross, the managing director of Cross Research, an equities research firm.

Mr. Hurd often emphasizes H.P.’s ability to alter its costs from quarter-to-quarter by making tweaks to the company’s vast supply chain. In addition, H.P.’s $13.9 billion purchase of E.D.S. last year has given it a new source revenue from services that has aided recent results.

H.P.’s services revenue increased 99 percent with the addition of E.D.S., to $8.5 billion. Since services deals often cover a number of years, the revenue tied to the agreements tends to remain steadier than hardware sales. Mr. Hurd’s focus on running such a lean organization does come with certain costs. The latest round of layoffs adds to the massive E.D.S.-related cuts and salary reductions across the company. “It all has to impact morale,” Ms. Cross said. “But I think people also understand that tough decisions need to be made.”

HP Pay Cut

Hewlett-Packard workers fired up their PCs Friday morning to find a long memo from Mark Hurd explaining why he was imposing wide-ranging pay cuts in an effort to prevent further job losses at the computer vendor.

HP CEO Hurd told employees yesterday that no more jobs would be axed for the foreseeable future. Instead he applied salary reductions across the board.

Executive council members will have base pay trimmed by 15 per cent; other execs will see base pay reduced by 10 per cent; “exempt employees” base salary takes a five per cent hit; and “non-exempt employees” base pay drops 2.5 per cent.
Source http://www.theregister.co.uk/2009/02/19/hp_pay_cuts/