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HP and Mike Lynch's divorce is not a bad thing

Column Gives both parties a chance to refocus
Fri May 25 2012, 10:57
V3 and The INQUIRER editor Madeline Bennett

V3 and The INQUIRER editor Madeline BennettAS DAYS GO, it's fair to say that 24 May 2012 wasn't one of the best for HP. The firm posted some shocking financial results, then followed those up with some equally shocking announcements.

So first up, here are the headline numbers:

27,000 - the number of its 350,000 employees that HP is planning to lay off, which equates to around eight per cent of its workforce. The cuts are expected to hit all regions, but HP tried to soften the blow by saying they will come mainly through early retirement.

31 - the percentage decline in second quarter profit compared to the second quarter of 2011, along with a three per cent decline in revenue.

11 - the percentage rise in HP's share price on the back of the layoffs announcement.

$3.5bn - the annual amount that HP expects to save due to these staff cuts.

1 - the number of technology visionaries HP kicked out.

CEO Meg Whitman has had a rocky start at HP since joining last September. The second quarter results are the third set that Whitman has presided over, although she could quite easily dismiss any responsibility for the fourth quarter and full year results ending October 2011.

The first quarter of 2012 saw HP posting a seven per cent decrease in revenue, with profits down by more than 30 per cent, so it's not surprising that the new boss felt the need to do something drastic to try to get the company back on track, even if that meant losing almost 30,000 staff.

During a message to her employees, Whitman gave some context to the staff cuts that anyone running an organisation in these lean times would find hard to argue with. She pointed out that HP's workforce has grown from 304,000 in 2009 to 325,000 in 2010, reaching almost 350,000 in 2011. During the same timeframe revenue grew by 10 per cent in 2010 and only one per cent in 2011.

But the positive news, so Whitman enthused, is that the $3.5bn savings will be put back into R&D, with the aim of making HP the leader in three core areas: cloud, security and information optimisation.

It's difficult to understand how PCs and printers fit into this new vision on a broad basis, although earlier this year we heard a little about HP's plans to build new hardware incorporating Autonomy software. IBM and Oracle are both already offering similar systems via their Puresystems and Exa- lines, respectively, but these are large, expensive outlays for customers so there won't be quick wins for HP.

IBM and Oracle also have the advantage that they can focus solely on the enterprise, throwing all their development resources behind the latest business trend - whether that's big data, cloud or integrated systems - without worrying about the impact on the consumer side.

Whitman's plan to focus on information optimisation and R&D does seem at odds with the decision to part company with Mike Lynch, founder of information management firm Autonomy and seen by many as a technology visionary.

Only three months ago, speaking at HP's Global Partner Conference in Las Vegas, Whitman was praising Lynch as a "remarkable asset" for the firm - but she couldn't help but point out her disbelief at the $10.3bn HP had shelled out for the firm in the first place.

Whitman said Autonomy sales had been poor in the recent quarter, but that the firm now plans to extend the software, along with its Vertica big data technology, across its entire portfolio. Some argue that Lynch would have been the best person to lead this extension, and that HP should have done more to integrate him and the Autonomy team into HP's wider software business, letting him spearhead development.

But I imagine the management teams were getting fed up with Autonomy being run as an autonomous division within HP, with Lynch keen to reiterate after the acquisition that HP understood to leave his baby alone and allow it to continue operating in an agile, innovative manner without interference.

They probably saw his departure as an easier way of shaping the technology to their own purposes, rather than having to go through a battle with Lynch to wrest control out of his hands.

This could end up being the best result for both parties. HP gets total control over development of Autonomy and integration with its software and hardware lines, giving the firm its preferred route to compete with rivals IBM and Oracle. Meanwhile Lynch gets time to spend some of his millions, relax for a bit, and then hopefully get back to the UK soon to help rejuvenate the information technology sector here with his next big idea. µ


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