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October 24, 2017

Dazed and confused! As HPE wields the axe what’s next for the company in turmoil?

Thousands of jobs are expected to go in order to help "clean-sheet the operating model."

By James Nunns

Meg Whitman’s HPE is wielding the axe as part of the company’s plans to save up to $1.5bn by 2020.

The company’s money saving plans, which will result in one in ten losing their jobs – or around 5,000 employees, comes under the HPE Next project, a three-year plan that aims to overhaul the company’s processes and investments.

The project isn’t new, given that it was revealed in June, but the mass global layoffs have only just begun.

Confirming the layoffs HPE told The Register: “As we said at our Securities Analyst Meeting, HPE Next is a three-year program that will fundamentally redesign the company. We are streamlining our operations, manufacturing, IT systems, and go-to-market with the goal of setting HPE up to compete even more successfully in the years ahead. The program will include both reductions as well as investments in a variety of areas. We did not disclose a headcount target, but said that about two-thirds of the overall program will be associated with workforce optimization.”

The problem is that this message comes across as the ruthless and heartless actions of a failing company. Using language such as “streamlining” and “workforce optimization” reeks of what many companies in the tech industry have sought to distance themselves from – heartlessness.

HPE’s problem is that it remains an old world business stuck in the past and now betting on a future that is far from secure.

The company’s SEC filing last week revealed the details of its latest transformation attempt:

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“On October 16, 2017, the Board of Directors of Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise” or “HPE”) approved a restructuring plan (“the plan”) in connection with the company’s initiative to clean-sheet the operating model, simplify the organizational structure, redesign business processes and prioritize investments in growth areas, known as HPE Next. HPE expects that the plan will be implemented through fiscal 2020 and will include gross cost savings as a result of changes to the company’s workforce, real estate consolidation, and business process improvements of up to approximately $1.5 billion. HPE will invest about $700 million of the gross savings back into the company in the form of go-to-market, operational and R&D investments in key growth areas. Net cost savings on a run-rate basis will be approximately $800 million exiting fiscal year 2020.”

At an analyst event in San Francisco last week, Whitman said that the company would be focusing on things such as high-end servers, hyper-converged infrastructure, storage, and networking equipment, whilst at the same time giving up on selling servers to tier-1 service providers.


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White box vendors are winning that market, taking HPE’s and Dell EMC’s market share, but this is yet another shift in what HPE actually does, which I think most people would struggle to put a finger on in its current state.

In networking HPE will be up against the likes of Cisco, in private cloud and managed cloud against Rackspace, and in the hyperconverged market it is against Simplivity and Nutanix. It’s hard to say that any of these markets would be an easy win.

The exiting from this market isn’t that big a shock, IBM is already doing it, and Oracle did it after it acquired Sun Microsystems.

HPE’s software has been shipped off to Micro Focus, and its services division to CSC.

HPE’s already bailed from the public cloud market, withdrawn from OpenStack, and is now making more radical changes.

The company is rated highly when it comes to Integrated Servers and other areas but this is also a crowded market and one that is expected to only be worth around $6bn by 2020.

HPE has been preaching about digital transformation for the past few years, calling itself the partner of choice and stating that it can understand how to help businesses because it is itself transforming, but it’s hardly been a picture of success. And if what it has to teach businesses is that they have to “clean-sheet the operating model” and sack thousands of staff, and spend billions on making new bets then it’s not a great lesson.

When businesses are investing in the products of a tech company they tend to want to know that the product line will exist in 12 months, with HPE it’s anyone’s bet as to what will remain of the company in a year.

There is some hope that HPE could turn it all around given that revenue made a rare increase in Q3, up 3% to $8.2bn, but this appears as more of an anomaly rather than the norm.

The company will be left with a large bill from the redundancies and it’s seemingly going to take years for all of the issues to be ironed out. The company will not only need to remedy its internal problems but will also have to repair its image over the coming years.

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