Is Cutting Jobs the Right Move for Hewlett Packard?

Making layoffs is never easy, or at least it shouldn't be. Hewlett Packard HPQ recently announced plans to 8% of its workforce, roughly 27,000 people, and, while analysts believe that it is a sound move, they are also saying that HPQ has more work to do before regaining the confidence of investors. Following the announcement, shares in HPQ went up 6% at $22.26 in Thursday morning early trading. Morgan Stanley responded to the restructuring plans by saying that HPQ intends to target “big cost buckets” by simplifying supply chain and go-to-market, and reducing SKUs. The program is ambitious and management expects it to generate $3-3.5bn of annualized savings (250-300bps). Deutsche Bank said these restructuring charges/ reinvestment actions give the company a healthy degree of flexibility (they estimate ~$1.00+ of EPS) to manage non-GAAP EPS, while Goldman Sachs said that HP's messaging around reinvesting restructuring savings and the relatively solid April quarter results offer the first signs that the company may be stabilizing. "While most turnaround stories include at least some form of restructuring, we believe HP is already lean and the company's ability to reinvest appropriately is still in question." Again, 27,000 jobs lost should not be taken lightly. Busi9ness is business, but that is a lot of families that will be adversely affected. However, HPQ was keen to point out that the majority of those jobs cut would be through early retirement. The fact that they would be generating annual savings of $3 billion to $3.5 billion as it exits fiscal year 2014 is what the analysts and investors will be looking at, and rightly so as that is their job. Of course, the truth is that, by losing that 8%, the company has a better chance of doing well and protecting the jobs of the other 92% (approximately 273,000 people). So, while Hewlett Packard still has plenty of work to do, it is making positive strides, and analysts still prefer it to Dell DELL, which has been attempting to diversify its revenue base while consumer demand continues to deteriorate. Follow me @BCallwood.