H-P's Layoff Plan Applauded by Analysts, But Only First Step

By FOXBusiness

Shares of Hewlett-Packard (NYSE:HPQ) were up nearly 6% Thursday morning as investors and analysts applauded the computer maker’s plan to axe 27,000 jobs, or about 8% of its workforce, to give a jolt to growth after reporting a 31% decline in second-quarter profit.

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At least two brokerages lifted their price target on H-P, including Barclays (NYSE:BCS), which raised its target to $26 from $25, and Sterne Agee, which lifted its target to $33 from $31 with a “buy” rating.

However, not all were as bullish, with Evercore cutting its price target to $24 from $26, and others noting that while the move is a step in the right direction, it's far from a solution to H-P’s deep-rooted problems.

"When one has little faith in a management team, there will be little hope that these savings will ever be properly realized as they will never be properly visible," Nomura Equity Research analyst Richard Windsor said in a research report, according to Reuters.

"The market will likely want to see that the savings are real and tangible in the bottom line before they are diverted to other things," he said.

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H-P said the layoffs will be made mainly through early retirement and are expected to generate annual savings of $3 billion to $3.5 billion by the end of 2014.

The late-Wednesday announcement came as the Silicon Valley company reported a narrowed profit and 3% year-over-year drop in revenue that edged slightly ahead of average analyst estimates in a Thomson Reuters poll.

The No. 1 U.S. computer maker said it also plans to reduce costs through supply chain optimization, SKU and platform rationalization, go-to-market strategy simplification and improvements to business processes.

“While we certainly don't believe HP has resolved all their issues, we do see the company moving in the right direction," RBC Capital Markets LLC analyst Amit Daryanani wrote in a note to clients, according to Reuters.