Thu May 24, 2012
What Will HP's Restructuring Look Like?
Originally published on Thu May 24, 2012 8:37 pm
ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
AUDIE CORNISH, HOST:
And I'm Audie Cornish. And we begin this hour with a few numbers and the story they tell about the troubled tech giant Hewlett-Packard. The company revealed yesterday that its profits dropped 31 percent from the same quarter a year ago. So now HP plans to cut a big number, some 27,000 jobs. How big is that? Roughly 8 percent of its global workforce. NPR's technology correspondent Steve Henn joins us now to talk about what this move means for the company that helped create Silicon Valley. Hey there, Steve.
STEVE HENN, BYLINE: Hi.
CORNISH: So you spend a lot of time reporting on companies that are doing well, that are growing and big profits. But this news from Hewlett-Packard, I mean, this is one of the biggest layoffs in corporate America, frankly, since the end of the financial crisis. So what is going on at HP?
HENN: Well, HP has sort of fallen out of step with where much of the industry is headed. You know, HP is still one of the largest computer companies on the planet in terms of revenue, and it's really enormous. It has 20 times the revenue of Facebook, close to 100 times the number of employees. But its future - at least according to Wall Street analysts and investors - doesn't look that bright. So right now, Wall Street values Hewlett-Packard at half of what it just sold Facebook for.
And the reason is that Hewlett-Packard makes a lot of its money from selling personal computers. And unless you're Apple, personal computers have very, very thin margins. You don't make a lot of money by selling each computer. So right now, HP is attempting to figure out what's next for the company, how it can move into the world of computing that seems like it's going to be dominated by mobile phones, tablets and, you know, what people call cloud computing systems.
CORNISH: But we're not talking about totally new technologies here. I mean, didn't HP try to make a tablet?
HENN: Yeah. They did - the TouchPad. And, you know, you may remember it didn't do very well. It was expensive, and until they cut the price dramatically, it really didn't sell. And actually, HP spent billions of dollars buying Palm. Do you remember the PalmPilot?
CORNISH: Yes, I do.
HENN: Yeah. So they bought Palm, and they created the - they tried to create at least this entire mobile phone ecosystem. And after the TouchPad flopped, the previous CEO, Leo Apotheker, abandoned that effort. So really, this restructuring isn't about moving into mobile. It's about moving into computing services really aimed at corporations and companies and startups, moving into the cloud.
CORNISH: You mentioned that term the cloud. I mean, some of us might be familiar with it as we're storing our data up on servers with various programs, whether they be Flickr or Facebook or all sorts of things where we're getting to store things off of our computer up in the mystery cloud. But what is HP going to do with this?
HENN: Well, HP wants to move into the business where they're actually renting businesses that server space and that computing capacity. So if I'm starting the next great app in Silicon Valley rather than having to buy my own stuff to power it, I can rent that from HP. Now, there are businesses out there that already do that. Amazon is the biggest one, but HP wants to compete in that space now.
CORNISH: HP also has a relatively, at least, new CEO in Meg Whitman, and it sounds like she's got a big challenge in front of her. If she's successful, what would an HP look like in five years if you were to forecast it?
HENN: Well, I think she clearly wants to make a company that's less consumer oriented, that's less dependent on really highly priced competitive consumer products, like PCs and printers, and more focused on delivering services and solutions to businesses where there are fewer competitors in the field and HP can really differentiate itself by offering things other people can't and therefore charge a premium for it.
CORNISH: All right, Steve. Well, thanks for getting us up to speed.
HENN: Sure thing.
CORNISH: That's NPR technology correspondent Steve Henn talking with us about Hewlett-Packard. The company plans to cut 27,000 jobs over the next two years. Transcript provided by NPR, Copyright National Public Radio.