HP Inc. announced it would lay off between 4,000 to 6,000 employees in a cost-cutting drive that aims to add $1.4 billion to its bottom lines over the coming years.
The PC and printer purveyor revealed the plan along with its Q4 2022 results, which saw $14.8 billion of revenue arrive – a year-on-year fall of 11 percent (and eight percent in constant currency) – and $1.3 billion of operating profit. Revenue fell one percent to $63billion, while operating profit was $6.6billion.
The company’s printers delivered $3.7 billion of that profit on $18.9 billion revenue – rather better performance than the $2.9 billion profit from $44.1 billion of PC-related revenue.
President and CEO Enrique Lores described the results as “a solid end to our fiscal year despite navigating a volatile macro-environment and softening demand in the second half” but added HP needs a strategy – which he dubbed the “Future Ready Transformation Plan” – to find “significant structural cost savings through digital transformation, portfolio optimization and operational efficiency.”
Digital transformation is the automation of sales leads and cash conversions.
“Portfolio optimization” is a strategy to target growth markets and fix some of the problems caused by COVID-19.
“During 2021 and ’22 because of the component shortages, we … had to duplicate investments in boards, in many different parts, to compensate for component shortages,” Lores said. HP Inc. was able to develop more product variations by doing so.
Lores stated that “This is clearly an opportunity to simplify and to rationalize, as well as to reduce investment on the cost side.” He also indicated that there could be some product lines left. “For instance, Personal Systems has the potential to significantly reduce our number unique SKUs,” said he.
HP Inc. also has a plan to sell more stuff by combining its own products with those of Poly – the company formerly known as Plantronics and Polycom before HP bought them for $3.3 billion – “while expanding in software and services to deliver differentiated hybrid work solutions for meeting rooms and home offices.”
Gamers will get “seamless” experiences on all their devices, including displays, peripherals, and PCs. A “Device as-a-Service” offering that caters to hybrid ecosystems will be available for business buyers.
“We will also expand our consumer services offerings beyond Instant Ink to include new areas such as paper and print hardware” Lores told investors – then later let slip that consumer ink-as-a-service is more profitable than managed print services for businesses.
Operational efficiency was defined as an effort “to reduce our variable spend and structure costs.” HP Inc. will assume approximately $1.0 Billion in labor and nonlabor costs related to restructuring, with approximately $0.6 Billion to be included on the FY 2023 balance sheets.
Payouts for the reduction of between 4,000 to 6,000 employees between now and FY 2025 will be one example of the labor costs. HP employs approximately 51,000 people, so this would represent a 12 percent reduction.
Lores claimed that the Future Ready Transformation plan’s savings will lead to improvements in results for the second half 2023. To ensure cash is available to handle the “challenging macroenvironment” of the year ahead, the CEO will end share buybacks.
Morgan Stanley analyst Erik Woodring, who was on the earnings call for the company, pointed out that the transformation plan is the successor of two previous rounds cost cutting. He also asked if they had gone far enough.
Lores said that the world has changed significantly since HP’s last cost-cutting plan. He also stated that prior efforts helped the company make positive investments in growth products.
Investors seem to like the new plan. HP shares rose a little after-the bell trading but still remain $11 short of its twelve-month high at $41.47. ®