HP must keep cutting costs, says chief executive

HP must reduce its costs if it is to become more profitable and grow, chief executive Mark Hurd has said.

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HP must reduce its costs if it is to become more profitable and grow, chief executive Mark Hurd has said.

By many measures, HP is successful. It edged past rival IBM in 2006 revenue, $91.7 billion (£47.58bn) to IBM's $91.42bn (£47.44bn), improved its net income by 158 per cent over 2005 to $6.2bn (£3.22bn) and is the industry leader in personal computer and blade server sales.

Speaking at the at a Morgan Stanley Technology Conference yesterday in San Francisco, Hurd said he remained unsatisfied by the company performance, despite the turnaround he has engineered at the company. "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 $1.2 trillion (£622bn) 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 on 20 February, that HP's storage business was weak. It grew only 6 per cent 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 per cent in the quarter.

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

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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