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HP Plans More Job Cuts by FY19 as Part of Restructuring

Zacks Equity Research
Updated

As part of its ongoing restructuring initiatives, HP Inc. HPQ recently, in a filing with Securities Exchange & Commission (SEC), noted that the company is increasing its employee retrenchment-plan target. The company now anticipates 4,500-5,000 employee retrenchment by the end of fiscal 2019.

The latest target is about 500-1,000 higher than the earlier target of 4,000 announced in October 2016. As of Oct 31, 2017, the company’s total employee count was 49,000. With increased layoff target, it also raised the one-time expense anticipations related to this.

HP now projects to incur a total of $700 million pre-tax charges related to the retrenchment, up from the previous forecast of $500 million. With the recent job-cut move, the company seems to be eyeing improving margins. In October 2016, this PC maker had announced job cuts to generate annualized cost savings of approximately $200-$300 million from fiscal 2020 onward.

It should be noted that since its split from Hewlett Packard Enterprise Company HPE in November 2015, HP has been trying to stabilize shrinking sales and eroding profits through a series of restructuring initiatives.

As part of its restructuring efforts, HP has adopted a strategy of focusing on product innovation & differentiation, pricing, and marketing and sales activities to spur demand for its PC products in the market. The company has launched various models under its PC product lines of EliteBook, Spectre and Pavilion Wave, in the last two years.

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The impact of these initiatives is well highlighted by the fact that the company regained the pole position in the PC segment by displacing Lenovo. Also, according to the data compiled by IDC, during first-quarter 2018, the company’s PC shipments registered the eighth consecutive quarter of year-over-year growth after witnessing several quarters of decline.

The company’s efforts to revamp printing business have also been commendable. It should be noted that HP has acquired the Samsung Electronics’ printer business. This acquisition is a strategic fit for HP as it has expanded the company’s printing business, with the addition of 6,500-plus printing patents owned by Samsung.

In addition to the above, the company is now focused on fortifying its 3D printing business capabilities. However, unlike 3D Systems DDD and Stratasys SSYS, which target all kinds of consumers, HP is emphasizing only on industrial markets due to their ability to afford a premium range of 3D printing solutions. It should be noted that even though HP has been operating in this space for almost five years now, it still lags behind 3D Systems and Stratasys.

However, these efforts have paid off well, with the company registering the fifth consecutive quarter of print business revenue growth in second-quarter fiscal 2018.

Also, the company’s recent quarterly results reflected revenue growth for the seventh straight quarter, out of which the last six recorded double-digit growth after a prolonged period of decline. Further, the Personal Systems and Print segments improved for the fifth straight quarter, after 2010.

Currently, HP has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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