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HP’s Dis-Synergies Will Likely Be Offset by Layoffs

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Split is going to cost $400–$450 million

In its fiscal 2Q15 earnings release, HP’s (Hewlett-Packard) CEO, Meg Whitman, stated that the company’s splint into two separate organizations is expected to cost ~$400–$450 million. She also said that this separation cost would be “divided equally between the two companies.”

Since HP (HPQ) is about to lose $400–$450 million due to the split, it appears that the 55,000 jobs HP aims to banish by the end of 2015 will help counterbalance the separation costs.

The above chart shows HP’s employee figures over the years.

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SMAC and declining revenue forced HP to resort to layoffs

HP witnessed a fall in PC sales, a decrease in printer demand, and a negligible presence in tablets with no smartphones. HP was impacted by SMAC (social, mobile, analytics, and cloud). SMAC is a disruptive technology that’s transforming the current IT environment at a rapid pace.

In 2011, HP announced a multiyear restructuring plan that’s designed to monitor declining revenue by laying off thousands of employees. Falling revenue forced HP to keep track of its costs. For technology companies, employee costs form a significant part of the operating expenditure.

The entire IT and software industry is overwhelmed with layoff announcements made by its leading players. In 2014, IBM (IBM) announced 15,000 job cuts. In 2012, Yahoo (YHOO), Google (GOOG), and Cisco (CSCO) announced 2,000, 4,000, and 1,300 layoffs, respectively.

On May 6, 2015, video game maker Zynga (ZNGA) announced that it would lay off nearly 18% of its workforce or ~364 employees.

If you’re bullish about Cisco, you can invest in the PowerShares QQQ Trust, Series 1 ETF (QQQ). QQQ invests about 3% of its holdings in Cisco.

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