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HP hits crossroads of capitalism

How Hewlett Packard, one of America's early digital giants, has lost its way.
Last modified: 24 May 2012 06:39
HP says its will layoff 8 per cent of its workforce to jumpstart growth [Reuters]

Hewlett Packard - one of the world's largest makers of personal computers and printers is axing 27,000 jobs between now and the end of 2014.

That's eight per cent of its workforce. The move is expected to save the firm $3bn a year.

On Wednesday, Hewlett returned a mixed set of numbers for the first three months of 2012.  While earnings per share beat Wall Street expectations, guidance for the next three was disappointing.

Nonetheless, HP remains one of America's top 20 biggest earning firms and a world class maker of personal computers and printers - for now. 

The trouble is no one knows how much longer it can take declining profits and stiff competition from flashier rivals.

Robert Sicina, from the Kogod School of Business at American University in Washington DC, summed up HP's dilemma this way.

"Somehow I think it lost its way in the nineties, the market and technology in the IT sector changed dramatically and HP for some reason didn’t."

HP's current Chief Executive Officer, Meg Whitman, is trimming expenses to offset a period of declining revenue and to free-up more cash for research and development.

And that's been HP's basic problem.  It's a bit boring - too much emphasis on cost cutting and not enough on developing exciting new gadgets, Robert Sicina, said.

"If you really think about over the last ten years, you gotta think really hard … and I’m not sure you can come up with a single product that HP has developed that “wowed” customers."

HP tried to take a bite out of Apple's iPad by investing multi-millions in the Touchpad tablet - but the hardware was clunky, the reviews dire and HP pulled the plug within weeks.

Morale has not been helped by a high turn-over of CEOs - three in just seven years.  There's been bitter in-fighting in the boardroom.  The company's share price has halved in value in the past two years.

So, Hewlett Packard has reached a classic capitalist crossroads. It happens all the time here and tends to go in cycles - put the money saved from the thousands of job losses to good use reinventing itself swiftly, or risk losing the firm altogether.