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The spotlight is on Enrique Lores, HP’s incoming CEO, as the printer giant unveiled a restructuring plan to address lagging printer sales that includes cutting up to 9,000 workers through a combination of layoffs and voluntary retirements. The cuts to the Palo Alto, California-based company’s 55,000-person workforce, announced at the company’s securities-analyst meeting on Thursday, are expected to yield annual savings of about $1 billion.
Lores, 54, is a long-time HP company man. He was tapped to take over in August when Dion Weisler, who had been CEO since the split with HPE in November 2015, said that he would leave the company due to a family health matter.
A native of Madrid with a degree in electrical engineering from the Polytechnic University of Valencia, Lores started at HP as an engineering intern 30 years ago. Over the years, Lores, who also has an M.B.A. from the ESADE Business School in Barcelona, moved up the corporate ladder, ultimately landing in the role as president of HP’s printing business. That business has been the source of recent difficulties due to declines in sales of printing supplies.
Turning around a giant tech company like HP—founded by Bill Hewlett and Dave Packard in their Palo Alto garage in 1939—is like maneuvering a cargo ship. To its credit, HP has enormous research capacity both at its Palo Alto headquarters and at a newer research facility in Barcelona. It is, for example, one of the leading players in 3D printers capable of mass-production scale, though privately traded unicorns Desktop Metal and Carbon have grabbed more excitement and attention. It has also debuted new consumer printers that are smaller and integrated with smartphones, and developed bioprinters that can “print” pharmaceutical samples. In a smaller company, those new products might get investors excited, but HP is a behemoth with $59 billion in trailing 12-month revenue.
Overall, the printer business accounts for around one third of HP’s revenue, but its importance is greater than that because it’s the company’s moneymaker. As head of that division, Lores had spearheaded HP’s 2017 acquisition of Samsung’s printer business for $1.05 billion, adding nearly 1,300 researchers and more than 6,500 patents. In the immediate aftermath of the HP-HPE split, HP’s printer sales were a source of growth, but that has changed. In the third quarter, revenue from the printer business fell 5%, to $4.9 billion, and it continues to face an uncertain future as more work goes digital.
HP’s business model in printing has also become a source of weakness. The company historically sold printers at a discount and made its money on ink cartridges—a classic razor-and-blade business model. “That model made sense when the goal was to penetrate more consumer homes and more offices,” Lores told the Wall Street Journal. But that shifted as customers cut the number of documents they print and switched to cheaper cartridges from China and elsewhere. With the restructuring, HP will still offer customers the ability to buy discounted printers, but it will then require them to buy ink from HP. For customers that don’t want to be locked in, the price of the printers will be higher.
“We are taking bold and decisive actions as we embark on our next chapter,” Lores said in a statement announcing the restructuring. HP declined to make Lores available for an interview on Friday.
Investors pummeled the stock, sending shares of HPQ down 10% to below $17 by Friday afternoon. With a market cap of $25 billion, HP now trades at just six times trailing earnings.