On Thursday, HP announced that it will be initiating a broad restructuring initiative. As part of the effort, the hardware giant will reduce its headcount by 16 percent. CFO Steve Fieler said the layoffs would affect the organization’s corporate and backend employees. The firm will also redesign its printers so that they won’t accept another brand of ink. Accordingly, the company now forecasts profits between $2.22 and $2.32 per share for the fiscal year 2020.
Even though the corporation’s restructuring plan will save it $1 billion in three years, Wall Street reacted negatively to HP’s announcement. The company’s stock fell by 8.97 percent on Friday.
‘Melting Ice Cube’
Once a titan of the technology industry, HP is now facing a seemingly irresolvable existential crisis. After splitting from its enterprise division 2015, the firm seemed primed for success. The separation helped the company cut costs and focus on its PC and printer business. For a short while, the plan worked. Indeed, HP bolstered its market position by purchasing Samsung’s printer business for $1.05 billion in 2017.
However, HP’s previous restructuring and strategic acquisition failed to address the fact that the company’s core business has been eroding. For years, the firm used low-price printers to lure in consumers. Then, it made the real money on its high-margin ink cartridges. However, the company’s income has suffered as other brands have started selling compatible ink cartridges at lower prices.
Furthermore, individuals and companies don’t need to print as much as they once did. As society becomes increasingly paperless, firms that make printers and ink are increasingly approaching obsolescence. Bernstein analyst Toni Sacconaghi recently downgraded HP’s stock and commented that the company’s business model is a “melting ice cube.”
Change or Die
When announcing its latest restructuring plan, HP’s leadership positioned the move as a positive. “We have spent a lot of time building this plan. We can embrace the changes we see happening in the market, and that can help us position the company for the future,” said the firm’s incoming CEO Enrique Lores.
However, it’s unclear if the company’s modifications will actually change its fortunes. For instance, it’s not inconceivable that the HP clones undermining its business in Asia, Europe, and the Middle East will find a way around its new proprietary blocks. Moreover, it seems profoundly unlikely that paper will make a comeback.
In fact, the only genuinely intriguing idea in HP’s recent announcement is the sales plan for its technology. Bloomberg notes that the company intends to offer its microfluidics tech to medical and cosmetic companies. For the uninitiated, microfluidics refers to the manipulation of fluids at a sub-millimeter scale. The firm has used the innovation to advance the functionality of its printers.
Meanwhile, HP has also developed microfluidics tech that can work in tandem with microsensors to measure biomarkers in real-time. As such, medical professionals can utilize the technology to perform rapid and low-cost diagnostic procedures. If HP can develop a microfluidic health monitoring system at scale, it may be able to pull off an Apple-esque pivot from hardware to services. Ultimately, the 80-year-old legacy brand needs to modernize its offerings if it’s going to reach its centennial.