Wednesday, June 2, 2010

Growing old is tough

HP’s latest announced job cuts repeat the lesson of its past decade: financial health is coming at the cost of employee security.

A chart in the Wall Street Journal article illustrates how CEO Mark Hurd is trying to raise the company’s operating margin to 10% — a figure achieved only once, at the end of 2009. The WSJ also reports that cutting 9,000 workers — implied to be largely from the 142,000 workers who came with the purchase of EDS — will create a $1 billion charge and a predicted $500-700 million/year in savings.

Meanwhile, the online headline for Merc columnist Chris O’Brien takes a more provocative view:

HP increases its leading product: Ex-HP Employees
The headline on page C1 of the dead tree version is more tame: “Innovation, alas, is no longer the HP way”, but both recount the $45 billion in acquisitions and 93,000 layoffs since the Agilent spinoff in 2000 left HP with 88,000 employees.

While Silicon Valley is conceived as a center of innovation, O’Brien writes:
HP's strategy forces us to acknowledge that success in the technology industry can also be gained through methods we tend to associate with old, tired industries. Buy a company. Cut costs. Trim employees. Repeat.

Indeed, HP has reclaimed its position among tech's elite companies during a decade in which it failed to produce a single, signature innovation.

When you think HP, you think "Compaq merger" or layoffs. Consolidation is the brand.
What I think the article fails to put in perspective is that the IT industry — what people normally associate with “Silicon Valley” — has reached middle age. Tech is not as old and tired as cars and steel, but its Fortune 500 companies are neither young nor vigorous.

Overall, tech “growth” is negative, cost-cutting is king, pressure on margins is relentless. HP’s buy-and-cut strategy resembles Oracle and other mature enterprise-oriented companies. It’s not HP — it’s the industry. Commoditization in mature industries means that cuts are standard operating procedure.

Apple (right now) is pursuing a different path, but that’s the exception that proves the rule. Apple is venturing into consumer electronics, where there are plenty of old-line CE firms that are either cutting or even fading away.

This reminds me of the old saying that acquired personal relevance when I personally reached middle age: Growing old is tough — but it beats the alternative.

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