Hurd plans to deliver HP cost cuts

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When Mark Hurd was appointed chief executive of Hewlett-Packard almost four months ago, he pledged to better execute the computer and printer-maker's strategy, as opposed to shifting it. On Tuesday, in his first big move at HP, Mr Hurd delivered as promised.

In a move designed to save the company $1.9bn a year and help HP get its cost structure in line with rivals such as Dell, the world's leading PC-maker, Mr Hurd announced that HP would slash 14,500 jobs. Mr Hurd's goal since taking over has been to streamline and simplify HP's structure in order to squeeze more profit out of the group's diverse business units. His move yesterday did nothing to change the company's overall strategy of competing across a broad range of markets, from PCs and printers to corporate servers and consulting.

“This was the triage,” said Frank Gillett, an analyst at Forrester. “But Mark Hurd still has more work to do.”

Few would dispute that those cuts were necessary. HP has struggled to go on the offensive since Carly Fiorina, the group's former chief executive, bought Compaq Computer for $19bn in 2002. The controversial deal was supposed to give HP the ability it needed to compete against IBM's high-end services business and Dell's low-cost PC operations. But HP's results have failed to measure up.

Mr Hurd plans to dissolve its unwieldy stand-alone sales organisation and trim support staff. By folding sales staff into HP's corporate computing unit, as well as its PC operations and printing division, Mr Hurd aims to reduce the level of complexity that has bogged down the company and added cost.

Mr Hurd's efforts to simplify HP's sales structure were consistent with recent changes, when he divided the PC and printer businesses and later split the global operations portfolio and chief information officer role.

Analysts applauded Mr Hurd's move, but some said there were a few issuesunresolved. For example, it was not clear that HP'scuts would go deep enough to enable it to bettercompete. “If you benchmark them right next to Dell the answer is no because Dell doesn't do the R&D that HP does. Does this move them closer in cost-competitiveness to IBM? Yes,” said Crawford del Prete, analyst at market researcher IDC.

And Mr Hurd once again downplayed analysts' calls to spin off HP's PC unit or printer division, prompting some observers to note the company had not yet clarified how it would differentiate itself from its biggest rivals.

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