Hewlett Packard Enterprise to Lay Off 10% of its Staff

WOLF STREET–Master of share-buybacks and revenue-shrinkage does what it does best.

Hewlett Packard Enterprise, which blew nearly $2 billion on debt-funded share buybacks over the three quarters of its fiscal year 2017, even as revenues fell 7%, will do the only other thing that, in addition to share buybacks and revenue-shrinkage, it has been doing really well for years since it was still the full-blown Hewlett-Packard: Mass layoffs.

The company will ax about 10% of its employees. That would amount to at least 5,000 workers of its workforce of about 52,000. The cuts will hit employees, including managers, in the US and abroad, “people familiar with the matter” told Bloomberg.

CEO Meg Whitman has been redoing the company since she took the job in 2011, after she lost out in her efforts to become governor of California. At the time, Hewlett-Packard, as it was still called, had 350,000 employees. After serial layoffs came some big divestitures: PCs, printers, business services, and some software units had to go. This includes the largest breakup in US corporate history, spinning off the PC and printer division to create two companies, her HPE and the PC business, HP Inc.

HPE sells cloud services, hardware, and software; servers, storage equipment, networking equipment, integrated systems, and software; consulting; services such as operational support; and financial services, such as IT financing. It is now down to about 52,000 employees. After the layoffs, it will be closer to 47,000 – a mere shadow of the former Hewlett-Packard. And it will continue to shrink.

In June, she announced a three-year plan, the HPE Next initiative, to cut costs by $1.5 billion. But that’s not what these layoffs are about. These layoffs are part of a separate plan to slash costs in the second half by $200 million to $300 million.

So this is just the beginning. HPE Next will then take over with more cuts to come.

“We are actually clean-sheeting both the operating model and the organizational structure to simplify how we work,” Whitman told analysts on September 5, during the earnings call for the third quarter. “With fewer lines of business and clear strategic priorities, we have the opportunity to create an internal structure and operating model that is simpler, nimbler, and faster,” she said.

During the quarter, the company bought back $625 million of its own shares. This bought the three-quarter total to $1.94 billion, financed with borrowed money, as long-term debt rose by $2.4 billion year-over-year. During the same period, HPE booked a net loss of $180 million.

HPE shares have plunged 40% so far this year, despite the massive share buybacks (is anyone else still buying the shares?). But news of the layoffs are perking them up this morning by nearly 1%, as the company pursues its apparent goal to cut itself to zero, while taking on every more debt, which it can as long as the bond market remains in denial.

And the bond market is in denial. Even on the day bankruptcy rumors surfaced, Toys ‘R’ Us bonds were trading at over 90 cents on the dollar. Two weeks later, the company filed for bankruptcy, and the bonds collapsed below 20 cents on the dollar. The bond market just didn’t want to see it.

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