Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



HP Job Cuts: One Small Step on a Very Long Road

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The iPhone 5 launch on Wednesday, Sept. 12, is sure to be the most important event for tech investors this year. The Motley Fool will be hosting a live chat where our top tech analysts will answer your questions and break down what the announcement means for Apple and tech investors everywhere. Be sure to swing by at 12:45 p.m. ET tomorrow for all your coverage of Apple's next big announcement.

In a tough employment market, it seems almost crass to applaud the decision to cut jobs. But as investors, you know that's the world we live in. When a company -- in this case Hewlett-Packard (NYSE: HPQ  ) -- is trying to find its way, dramatic steps need to be taken. The steps took the form of an additional 2,000 lost jobs at HP, beyond the 27,000 CEO Meg Whitman announced in May.

The harsh reality
The positive stock-price movement after the Sept. 10 expense-reduction announcement does little for the soon-to-be-unemployed HP staffers. But for shareholders, any news that raises HP's share price is welcome. Why? Because even after Sept. 10's nearly 2% price appreciation, the stock price is down over 30% year to date.

The expected $3.5 billion in annual savings (by 2014) the reduction in workforce generates will certainly help the beleaguered global PC sales leader. What should concern investors is where many of the job cuts will come from: one of HP's key divisions -- the enterprise services group.

Though networking revenues were up 6% versus last year in HP's recently announced Q3, the units' servers, critical business systems, and storage revenues all dropped. So it makes business sense that these areas -- along with the poorly performing services unit -- would see the majority of the job cuts, right?

Here's the problem: As HP tries to reinvent itself, a la Dell (Nasdaq: DELL  ) , a shift in focus toward data centers and cloud technologies would seem to be in order. The transition to the burgeoning cloud and hosting solutions businesses is why Dell is a screaming buy, even before the recently announced dividend (more on that here).

HP's head still in the cloud
Even as the announcement regarding additional layoffs continue to resonate, HP isn't entirely abandoning the cloud, or the growth potential it represents. On Sept. 5, HP issued a press release discussing the expansion of its partnership with Microsoft (Nasdaq: MSFT  ) to bring one-stop cloud shopping to clients.

The objective is to simplify the process for clients wishing to take advantage of the cost savings and ease-of-use the cloud offers, while addressing security and barriers to entry. By combining HP's CloudSystem solutions with Microsoft's servers and system centers, clients are able to quickly and inexpensively adopt cloud services into their daily activities. Microsoft, along with IBM (NYSE: IBM  ) , both got on board with the cloud some time ago of their own accord, and they and their shareholders are reaping the benefits.

Dell is just starting to make cloud and data-center inroads, but there's a big difference between it and HP. As HP announces layoffs in the enterprise unit -- even with the new Microsoft alliance -- Dell continues to grow aggressively in these key areas. The integration of multiple acquisitions, along with the hiring of former HP enterprises business unit executive Marius Hass, speaks volumes about the direction Dell is focused on.

For Dell at least, the strategy's working. Dell's enterprise business continues growing as a percentage of total revenues. Server, networking, data storage, and related services are also contributing larger amounts to Dell's bottom line. HP? It's opted to focus the reduction in workforce on the enterprise and related services units. What we have here is a tale of two strategic directions, one via an emphasis on internal growth in an exploding market and HP's plan -- partnering with a leading cloud innovator in Microsoft.

What's an investor to do?
If growth in the tech sector is what you're after, Dell is hands-down a better option than HP. And both Microsoft and IBM, in spite of year-to-date run-ups of 18% and 9.5%, respectively, are more diversified and better positioned to benefit from new markets like cloud and data centers than HP, too.

Now, don't get me wrong. With $9.5 billion in cash on the books and a dominant PC market share, it's not like HP is going away anytime soon. And the more aggressive stance on cutting expenses, even with the associated one-time expenses HP will incur as a result, needs to happen. But the problems go beyond shaving overhead.

What will HP become when it grows up? If the latest announcement is any indication, it isn't quite sure yet. And that's why HP still has a long journey ahead.

For a more diversified investment option in the tech sector, Microsoft is one to seriously consider. New systems, new products, and an entry into the mobile computing sweepstakes makes Microsoft an intriguing play right now. Before diving in, you want to make sure you have all the information you need. So, take a look at the Fool's special free report on all things Microsoft.

Fool contributor Tim Brugger currently holds no securities positions, including any mentioned in this article. The Motley Fool owns shares of Microsoft, Apple, and IBM. Motley Fool newsletter services have recommended buying shares of Microsoft and Apple, creating a synthetic covered call position in Microsoft, creating a bull call spread position in Apple, and creating a synthetic long position in IBM. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2013768, ~/Articles/ArticleHandler.aspx, 10/26/2016 11:45:39 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,222.58 53.31 0.29%
S&P 500 2,144.41 1.25 0.06%
NASD 5,273.38 -10.02 -0.19%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 11:30 AM
HPQ $14.00 Up +0.10 +0.68%
HP CAPS Rating: ***
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
IBM $152.37 Up +1.49 +0.99%
IBM CAPS Rating: ****
MSFT $61.09 Up +0.10 +0.16%
Microsoft CAPS Rating: ****