Hurd says HP's cost structure still too high

Hewlett-Packard CEO Mark Hurd said Monday the technology company's cost structure is still too high, despite the strong profitability

Despite the turnaround Mark Hurd has engineered at Hewlett-Packard, the president, chairman and chief executive officer of the technology giant remains unsatisfied.

Hurd said at a Morgan Stanley Technology Conference on Monday in San Francisco that the company still has to reduce its cost structure in order to be more profitable and grow.

By many measures, HP is successful. It edged past rival IBM in 2006 revenue, US$91.7 billion to IBM's US$91.42 billion, improved its net income by 158 percent over 2005 to US$6.2 billion, and is the industry leader in personal computer and blade server sales.

"But on an absolute basis, we're not doing well," Hurd said.

Although HP has been on a two-year campaign of cost reduction, including employee layoffs, those savings are still not completely reflected in HP's profit and loss statement, he said.

"I don't think that we've gotten very good traction with the investment base understanding that these are efforts that require time," Hurd said. "It will take us all of the next two years to be able to take advantage of that."

In an interview before a room full of Morgan Stanley investors, Hurd said the total available worldwide market for the computers, servers, printers and information technology services HP offers is US$1.2 trillion, but that HP still doesn't cover that market effectively. He said the company needs to add to its sales force and develop more partnerships with other companies to better reach customers.

Hurd acknowledged, as he did in the company's earnings conference call Feb. 20, that HP's storage business was weak. It grew only 6 percent in HP's fiscal first quarter, which he attributed to the fact that much of its product line is tape storage, a declining business. However, sales of its EVA line of disk storage products grew 18 percent in the quarter.

As for server sales, while they grew 10 percent overall, sales of blade servers jumped 45 percent in the quarter and the Integrity line of high-end servers grew by 75 percent.

To further control costs, HP last month offered employees an early retirement opportunity and said it would change from a pension plan to a 401(k) plan, although employees currently in a pension plan will still receive their pensions.

While that is expected to trim payroll costs, Hurd said other costs such as services delivery, real estate and procurement still have to be tightened.

Hurd was one of scores of technology company executives speaking at the technology conference that runs through Wednesday.

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Robert Mullins

IDG News Service
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