For the second time in 15 months HP Inc. has announced significant layoffs, accompanied by an aggressive stock buyback program, in the face on the ongoing struggles in its printer business.
At a financial analyst meeting Thursday, company officials reported plans to reduce head count by as much as 9,000, or 16% of its 55,000 employees. The staff reductions, through layoffs and voluntary early retirement, are expected to be completed by fiscal year 2022. In June 2018, the company laid off 5,000 employees over several months.
While the company appears to be holding its own in the PC space -- both Gartner and IDC place HP Inc. in the top two for unit shipments as of this year's second quarter -- the company's printer and printer supplies business has been under stress from third-party suppliers selling toner and ink at significantly lower prices.
Patrick Moorhead, president and principal analyst at Moor Insights & Strategy in Austin Texas, said he was surprised by the number of layoffs given the company's overall profitability and its market position among PC suppliers.
"I was surprised because we are not talking about a company in crisis," he said. "This feels like a move in order to get ahead of some investments they want to make in software and services.
Patrick MoorheadPresident and principal analyst, Moor Insights & Strategies
"Dell can walk into client shops and offer them Dell plus VMware and SecureWorks. I think HP can do the same, but they need to differentiate their offerings more," he said.
HP will likely reduce its backend costs associated with supply chain, finance, HR and other Opex expenses and invest the $1 billion savings into these new products and services that figure to be part of its PC-as-a-service strategy.
"It's not like they have to cut people to survive," Moorhead said. "To me, this is a preemptive move."
But it is the printer and printer supplies segment where the company faces its biggest long-term challenge, a market where HP has long been the market leader. Moorhead said the company's printer business accounts for a whopping 75% of its total profits and roughly half of its total revenues.
"Not only are bootleg ink suppliers forcing a lot of pricing pressure, but established regions like the U.S. and Western Europe are printing less and emerging regions are printing more," Moorhead said.
HP Inc.'s reorg and executive changes
The reorganization coincides with the arrival of the company's new CEO, Enrique Lores, who is replacing Dion Weisler, who is reportedly stepping down to address a family health issue.
The company also announced to analysts it is expanding its stock repurchase plan by $5 billion. This amount is on top of the $1.7 billion that remains on the current buyback authorization. In total, the $6.7 billion figure is 25% of HP Inc.'s current market capitalization, which is $27.2 billion.
HP said it plans to pursue a new business involving licensing its microfluidics technology that it uses in its graphics and 3-D printing markets to third-party suppliers that can be used in new applications aimed at the healthcare and cosmetic markets.