HP enterprise services told to cut $2bn over three years

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HP enterprise services told to cut $2bn over three years

Govt austerity programs blamed for cost cutting.

Hewlett Packard's enterprise services group has been told to slash US$2 billion (A$2.6 billion) in costs over the next three years as large accounts leave its traditional business.

The group's most recent quarterly results, released on Friday, were down almost entirely across the board, with only standard servers showing an uptick, rising 11 percent in the second quarter of 2015.

The enterprise group's new chief financial officer Cathie Lesjak said [PDF] several areas of the division were under pressure.

In particular, the infrastructure technology outsourcing (ITO) business was severely dented by competition from cloud providers. Government austerity programs in the United States and Europe have forced a business model transformation, HP said in its results. 

"Basically, the public sector business has gone from buying in a fixed fee model to a cost plus model, so that put some pressure on," a company spokesperson said.

ITO revenue nosedived by 20 percent for the second quarter of 2015 and "industry challenges have been accelerating" for the business, threatening its long-term profit level sustainability , Lesjak said.

"Our current view is that we need to take up to US$2 billion of growth annualised cost out of this business over the next three years," she said.

To effect any level of savings, HP expects to incur accounting-only charges of similar amounts to the cost-cutting exercises, potentially amounting to US$2 billion.

Lesjak said the potential charges will "be front-end loaded" but should take place over three years. She said she expected to see cashflow benefits from the GAAP-only charges by HP's fiscal 2016 year.

Revenue for the business critical systems and networking divisions slid by 15 and 16 percent respectively, whereas enterprise services dropped 16 percent.

Total revenue for the enterprise group dipped by one percent, but the division enjoyed a 14.5 percent operating margin. 

HP is preparing to split itself intwo two companies - one for its computer and printer business and the other for its corporate infrastructure and services operations - by the end of fiscal 2015.

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