The ongoing turbulence in its business operations has forced
) to opt for major restructuring activities. Recently, H-P
announced its decision to reorganize its Enterprise Services
business by way of shutting down its German unit. The unit is
situated at Rüsselsheim and employs about 10,000 employees.
The closure is likely to eliminate 850 positions. The company
also announced plans to transfer another 250 employees to its
partner companies or clients.
This announcement is a part of its global restructuring plan
chalked out in May 2012. Per the plan, which was made to achieve
some long term benefits, H-P will focus on reducing the cost
structure and realigning the workforce to create investment
capacity, support growth initiatives and innovation and enable
more effective operations globally.
As part of the restructuring, H-P also expected to announce 9,000
job cuts in fiscal 2012 and cumulatively, approximately 27,000
employees by the end of fiscal 2014.
H-P expects the restructuring actions to generate annualized
savings in the range of $3 billion to $3.5 billion exiting fiscal
2014. The refocus of the business involves investment in
technology and business processes, as well as the hiring of
people with new skill sets, in some cases, at lower-cost
locations. On top of the cost savings from head count reductions,
the company expects further non-labor savings from supply chain
efficiencies and a new price and promotion strategy.
H-P expects to reinvest the majority of savings from head count
and non-head count related actions into its business to foster
innovation, particularly in cloud, big data analytics,
information management and security.
H-P's Enterprise Services business was not performing as well as
expected by the company. The reason was attributed to weak
performance by one of the priciest acquisitions ever made by H-P
in order to boost the business. H-P recorded a significant charge
for its Enterprise Services business in the third quarter of
The charge was for the Electronic Data System (acquired in
2008 for $13.9 billion). We believe that the current
restructuring effort will reduce operating costs and pull up
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Though the restructuring is encouraging, the benefits may not be
felt in the near term. Hence, the stock has a Zacks Rank #3
(Hold). But the stock has an earnings Expected Surprise
Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) of -2.8%, which lowers the chances of an earnings beat in its
first quarter 2013 earnings announcement on Feb 21.
Due to a lackluster PC market and overall macro uncertainty, most
of the technology stocks are not performing well. But we would
recommend investors to consider
DST Systems Inc.
), all of which have a Zacks Rank #1 (Strong Buy).