HP Inc. today announced plans to cut up to 10% of its global workforce as it struggles to cope with a massive drop in demand for personal computers that will likely continue well into the new year.
The cuts came after the company reported disappointing fourth-quarter financial results and issued a soft guidance for the quarter ahead. The company, which reportedly has around 61,000 employees worldwide, plans to lay off between 4,000 and 6,000 over the next few years. This is part of a transformation plan to achieve up to $1.4 billion in savings.
The plan will cost the company about $1 billion in upfront costs, but is necessary due to a “volatile macro environment and a slowdown in demand in the second half, with a slowdown on the business side,” it said. HP chief executive Enrique Lores (pictured) in a conference call today. “We think at this point it’s safe not to assume the market will turn around in 2023,” the CEO added.
According to Lores, about half of the $1 billion restructuring costs will be realized in the next fiscal year. However, “the cuts are made over three years, not in the next few months”, he added.
The layoffs were announced following a fourth-quarter financial report that showed revenue fell 11.2% to $14.8 billion. HP also posted a slight net loss for the quarter, mainly due to costs arising from a legal settlement. HP’s personal systems business, which accounts for sales of PCs and laptops, generated $10.3 billion in revenue, down 13% from a year earlier. Meanwhile, the company’s printing business added $4.5 billion, down 7%.
HP stock fell more than 3% in after-hours trading following the report, before rallying after the layoffs were announced, rising about 1.7%.
Charles King of Pund-IT Inc. told SiliconANGLE that HP’s planned layoffs aren’t much of a surprise given that PCs make up the lion’s share of its business. He said the company deserved credit for spreading the layoffs out over a three-year period. “It means the process should be done in a more sensible way, unlike the slash and burn layoffs we’ve seen on Twitter over the past two weeks,” he said.
HP isn’t the only one foreseeing problems for the PC market. Just yesterday, one of its main rivals, Dell Technologies Inc., said it was also preparing for a sharp decline in PC sales. This came after the company reported a 6% decline in overall revenue and a 17% decline in its client solutions group, which accounts for PC sales.
Dell said it expects PC sales to decline even more sharply in its fourth quarter and offered a soft revenue guidance to reflect that. “We expect ongoing global macroeconomic factors, including slowing economic growth, inflation, rising interest rates and monetary pressure, to weigh on our clients and therefore their intentions. IT spend, even as they continue to digitize their business,” said Dell CFO Tom. Sweet told analysts.
The news didn’t come as a complete shock. The PC market is slowing rapidly after seeing a surge in sales during the COVID-19 pandemic, when people bought new machines to prepare for remote work and online learning.
Now that most people have a new computer and the economy is crashing, people are avoiding buying such expensive items. Three months ago, Dell executives warned they were revising their expectations for the PC market after analyst firms such as Gartner Inc. and International Data Corp. had predicted that PC sales would likely experience their worst decline in at least a decade.
With that in mind, HP executives said the company is looking for fiscal first-quarter earnings of between 70 and 80 cents per share, below street guidance of 86 cents per share. For fiscal 2023, HP is targeting earnings of between $3.20 and $3.60 per share. The company did not provide any revenue forecast.
“Looking at the big picture, it’s hard to see where the company is without considering how misguided former CEO Meg Whitman and her management team had to split HP into two companies in 2015,” King said. about the company’s prospects. “It was an act that left both organizations considerably less resilient than they had been together. If the economic turmoil continues into 2023, I expect this lesson to continue to be clear in the quarters ahead. »
PC manufacturers are not the only ones to suffer from the crisis. Intel Corp. recently announced its own cost-cutting campaign and is reportedly considering divestments. Meanwhile, rival chipmaker Advanced Micro Devices Inc. offered a weak sales forecast this month based on slowing demand.
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