Why HP Is Restructuring

By Amit Chowdhry ● October 13, 2019
  • HP recently announced it is restructuring through the reduction of up to 9,000 jobs. These are the details.

At HP’s recent 2019 Securities Analyst Meeting, the company announced a restructuring in order to save the printing business. One of the biggest reasons for the restructuring is due to the losses in sales for its pricey ink and toner cartridges as consumers are turning to third-party suppliers selling products at lower prices. As part of the restructuring, HP is expecting to reduce up to 9,000 jobs through a combination of employee exits and voluntary early retirement.

HP estimated that it will incur total labor and non-labor costs of approximately $1 billion in connection with the restructuring and other charges while expecting an annualized gross run-rate savings of about $1 billion by the end of fiscal 2022. And HP anticipates generating a free cash flow of at least $3 billion for fiscal 2020. HP Chief Financial Officer Steve Fieler told Bloomberg that a “bulk of the savings will be in corporate functions, back-office support.”

And HP also authorized an additional $5 billion for future repurchases of outstanding shares of common stocks. And HP is intending to use the additional authorization to repurchase its shares from time-to-time in order to offset the dilution created by shares issued under employee stock plans and to repurchase shares opportunistically. As of September 30, 2019, HP had about $1.7 billion of share repurchase authorization remaining prior to the board’s approval of the increase. In fiscal 2020, HP also indicated that it expects to return at least 75% of free cash flow with a 10% increase in the planned quarterly dividend amount.

“We are taking bold and decisive actions as we embark on our next chapter,” said HP’s incoming President and Chief Executive Officer Enrique Lores in a statement about the restructuring. “We see significant opportunities to create shareholder value and we will accomplish this by advancing our leadership, disrupting industries and aggressively transforming the way we work. We will become an even more customer-focused and digitally-enabled company, that will lead with innovation and execute with purpose.”

Lores was named as CEO of HP in August and the position will be officially effective on November 1. Weisler had been CEO of HP ever since HPE spun off in November 2015. Due to a family health matter, Weisler is stepping down. Originally from Madrid, Lores received a degree in electrical engineering from Universitat Politècnica de València in 1989. And he also received an MBA from ESADE Business & Law School in Barcelona in 1993. Lores had started his career at HP as an engineering intern 30 years ago.

Under the leadership of Lores, HP is going to ramp up its enterprise PC unit with more security features and enhance the 3D printer arm. As mentioned earlier, the company will also fight off competition from third-party suppliers with the Instant Ink subscription service — which saw substantial revenue growth this past quarter.

A few days ago, HP’s stock took a hit after Goldman Sachs analyst Rod Hall downgraded the stock due to a “tougher environment” next year. And Hall also downgraded his HP rating to “sell” from “neutral.” Plus the price target was dropped to $14 from $18. Hall had also downgraded the Cisco Systems and NetApp stocks.

Hall believes that HP’s PC growth will be slower due to weakness in the global consumer PC market. And Hall also believes that the gains from commercial PCs were driven partially by the Windows 10 migration, but that may slow down next year.

New Business Strategy

Going forward, HP plans to shift towards profiting from selling high-end hardware and reducing its dependence on selling supplies. Plus it will also aggressively expand on its services like Instant Ink and Managed Print Services. HP will continue selling cheaper printers, but it will make sure that third-party ink cartridges will not be usable. However, HP will still higher priced hardware that would support third-party products.

The problem with this strategy is that HP’s rivals may aggressively drop their prices as well. HP has been facing aggressive competition from brands like Canon, Brother, and Epson when it comes to pricing.

In HP’s last quarterly earnings report, the company announced $14.6 billion in net revenue, up 0.1% from the prior-year period. However, the printing net revenue was down 5% year-over-year and total hardware units were down 9%.

What brought HP’s revenue up was the Personal Systems net revenue — which increased 3% year-over-year. And Commercial net revenue increased by 10% and the Notebooks and Desktop units increased by 2% and 11%, respectively.

Last year, HP hit $58.47 billion in revenue and its printer business accounted for about one-third of that. And a couple of years ago, HP acquired Samsung’s printer business for $1.05 billion.

Ink Subscription Program

The HP Instant Ink program has your printer order Original HP Ink when you’re running low and it is shipped straight to your door. There are five plans available including a free plan of 15 pages/month without rollover (each additional set of 10 pages is $1). The plans that have a rollover option include the $2.99/month (50 pages per month, 100 unused pages roll over, $1 for each additional 10 pages), $4.99/month (100 pages per month, 200 unused pages roll over, $1 for each additional 15 pages), $9.99/month (300 pages per month, 600 unused pages roll over, $1 for each additional 20 pages), and $19.99/month (700 pages per month, 1400 unused pages roll over, $1 for each additional 20 pages).

This type of program tends to work out well for families who print a lot of class projects, teachers who print assignments, and photographers who print a lot of pictures. However, HP requires you to ship back the Instant Ink cartridges once you cancel the service. And if you use the printer after canceling, then you could be charged. Many HP Instant Ink users have pointed out that they have saved money by using this program rather than buying new cartridges the traditional way.

Healthcare Industry

Another industry that HP has been aggressively expanding towards is healthcare. Last week at the Cerner Health Conference (CHC) 2019, HP announced how the HP Healthcare Edition print portfolio is improving patient safety, enabling clinical efficiency, and securing patient data and medical records.

“More than any other industry, healthcare solutions that address global challenges have the power to improve the lives of people all around the world,” explained Tuan Tran, Incoming President, Imaging, Printing and Solutions at HP. “Our new innovations are designed to address the most pressing issues facing the healthcare industry today including patient safety, care coordination, clinical efficiency, and security. Through deep customer insights and collaboration with healthcare associations and partners, we’re reinventing what’s possible in healthcare.”

As the Centers for Disease Control (CDC) estimates that hospitals are responsible for 1.7 million infections and 99,000 associated deaths each year, electronic devices — which are critical in successful patient treatment — are common areas for pathogenic bacteria contamination. And improving sanitization procedures is not enough to combat the problem since many technology touchpoints are quickly damaged by germicidal wipes.

To combat this problem, HP released new Healthcare Edition MFP keyboards touch-enabled control panels that are designed to be sanitized regularly withstanding up to 10,000X industry-standard germicidal wipes and helping to reduce the risk of health-care-associated infection transmission. HP also introduced EN/IEC 60601-1-2 certified HP Healthcare Edition printers for EMI safety. And this certification ensures these devices can be used within the patient sphere without risk of electromagnetic interference to sensitive patients and surrounding medical equipment.

Plus HP is also collaborating with Zebra so clinicians can now print integrated patient ID wristbands — which increases patient identification accuracy. And with HP’s Managed Print Services program with Zebra, care providers are able to print trackable labels on-demand via Radio Frequency Identification (RFID). For secure prescription printing technology, HP solutions with Troy software are able to track a prescription’s validity, reducing prescription inaccuracies as well as controlled substance prescription abuse.

Clinicians log into IT systems 70x per day thus overextending their capacity and resulting in burnout. Fortunately, HP’s new print solutions offer care providers easier input and extraction of patient information on the go with their Imprivata-enabled identity badge. Plus HP’s Healthcare Edition portfolio combined with Cerner’s EMR provides end-to-end computing to the printing ecosystem.

And HP Healthcare Edition MFPs also include the Biscom for Healthcare app — which is integrated with EPIC and Cerner. This enables the clinical team to digitally transmit and receive patient information or directly input data into the electronic medical record (EMR) system right from an app on the printer.  With this technology, can providers can make timely critical decisions to improve the experience of patients and the whole care team.

Care providers are able now able to swipe their regular Imprivata-enabled identity badge to the built-in RFID reader on any HP Healthcare Edition PC, complete a patient chart, or place an order in Cerner Millenium. And then they simply walk up to any HP Healthcare Edition printer and swipe the same badge to securely release the document. This ensures clinicians receive the correct patient medication reconciliations, controlled substance prescriptions, lab reports, patient education, or discharge summary documents.

The HP Healthcare Edition Print Products and Solutions are expected to be available Spring 2020 to customers in the U.S. and Canada.

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