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Hewlett-Packard to Cut More Jobs as Part of Restructuring

Tech giant Hewlett-Packard CompanyHPQ or H-P is planning to shed around 25,000 to 30,000 jobs in its enterprise business in preparation of its split into two companies after about a year of consideration from Nov 1 this year.

In addition to the above mentioned figures, the company will cut approximately 3,300 jobs from its soon-to-be formed personal computer and printer business, HP Inc. over a period of three years. The primary reason for such a massive reduction is to reassure investors about HPQ's continued focus on lowering expenses as well as its concerted efforts to improve profitability.

Hewlett-Packard in its last reported quarter (third-quarter 2015) confirmed that approximately 3,900 people had been laid off since the program started, bringing the total employee strength to roughly 44,100 to-date. The company had increased its prior target of 55,000 job cuts by up to 5% by the end of the fourth quarter of fiscal 2015. The job cut will affect about 10% of its 300,000 employees.

The company will benefit from the restructuring plan as the latest layoff promises to generate annual cost savings of $2.7 billion after the separation of the units have taken place.

The company's CEO Meg Whitman said that the "final actions will eliminate the need for any future corporate restructuring."

H-P had announced in Oct 2014 that it would split its enterprise-facing hardware and service business and its consumer-facing computer and printer segments, with both companies trading publicly. The business-oriented company will be called Hewlett-Packard Enterprise while the PC focused business will be called HP Inc.

We believe that the split will provide both the companies with the focus, financial resources and flexibility to quickly adjust to changing market and customer dynamics. We also believe that these steps will add long-term value for its shareholders.

Forecast for the Yet-to-be Formed Companies

HP Inc.: It is expected to generate non-GAAP earnings in the range of $1.67 to $1.77 per share for fiscal 2016.

Hewlett-Packard Enterprise: Its non-GAAP earnings per share are likely to be in the range of $1.85 to $1.95 for fiscal 2016.

Bottom Line

We believe that the biggest benefit that H-P will derive from splitting its two business units will be increased focus on its two diverging lines of business. This will enhance shareholders' value. The separation will also enable the company to turn around its Enterprise Services business and strengthen its go-to-market capabilities.

The increased focus will enable it to tap opportunities in adjacent areas such as 3-D printing that will hopefully return sustainable cash flow and earnings multiples for years to come.

Furthermore, trimming its workforce as part of its internal restructuring will help the company to combat the losses due to the fall in worldwide PC sales, which have been declining as a result of rising demand for smartphones and tablets among consumers and corporates and FX. Furthermore, it will help the company to concentrate more on emerging areas like mobile, wearables, cloud-computing and productivity software.

Going forward, we believe that HPQ's traction in the cloud, security and Big Data segments will be growth catalysts, going forward. Nonetheless, HPQ's enterprise segment will now compete directly with International Business Machines IBM and Oracle ORCL , which means that a lot still depends on execution.

Hewlett-Packard carries a Zacks Rank #3 (Hold).

A better-ranked stock in the technology sector is Amazon.com Inc. AMZN , sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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