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What Layoffs Mean for Hewlett-Packard: Strategist

Wednesday, 23 May 2012 | 11:34 AM ET
Hewlett Packard
AP
Hewlett Packard

Analysts expect Hewlett-Packard to announce a restructuring plan today that could mean layoffs for 25,000 to 35,000 employees, or 10 percent of the company’s workforce.

“It’s not a surprise at this stage of the game. It’s just the beginning,” said Mark Stahlman, director at TMT Strategies, in an interview on CNBC’s “Squawk Box.”

The restructuring announcement is expected to dovetail with the company’s second-quarter earnings report, expected after the closing bell.

Despite the layoffs, Stahlman sees a silver lining.

“HP has a fabulous opportunity here. They've got totally new management,” he said. “Maybe [CEO] Meg Whitman will actually try to run the company; in order to do that, she'll need a new digital economy strategy."

The hurdle for a PC-seller is undoubtedly high. Shares of HP fell after Dell announced an earnings miss on Tuesday, citing weakened consumer demand.

For Stahlman, HP’s solution lies in serving digitally savvy consumers who now care more about quality of life than quantity.

Computing Layoffs at Hewlett-Packard
Mark Stahlman, TMT Strategies, provides a preview of Hewlett-Packard's Q2 earnings and weighs in on reports the tech giant may be laying off as many as 30,000 employees.

“The problem is HP has always been an engineering-driven company — too many engineers pushing far too many products,” he said. “But Meg comes from Ebay, so she has a chance to put together the digital strategy HP’s never had.”

For the time being, the company’s valuation — far below historic averages — may be the reason investors choose to wait for Whitman’s next move.

“Enterprise value [EV] to sales is the way to assess HP: They’re about 25 to 30 percent,” said Stahlman. “That’s ridiculous! A broken computer company trades at 50 percent.”

For this strategist, International Business Machines is a benchmark for a successful computer company, and its valuation, “one times EV to sales,” is a sign of decent growth results and a “solid strategy.”

IBM’s forward looking 12-month valuation is about 13 times earnings, whereas HP’s is currently just over five times earnings.

—By CNBC’s Jennifer Leigh Parker

Additional News: Dell Shares Skid as Earnings Disappoint
Additional Views: PC Weakness to Endure: Pros
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CNBC Data Pages:

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Disclosures:

Neither Mark Stahlman nor his firm, TMT Strategies, own shares in HPQ.

Disclaimer
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Follow Jennifer Leigh Parker on Twitter @jparker741.

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