HP TELLS OREGON DIVISION…..THE INK BUSINESS IS 'BROKEN'
HP TELLS OREGON DIVISION…..THE INK BUSINESS IS 'BROKEN'
2008-08-05 at 12:16:45 pm #20339
HP tells staff in Corvallis ink business is ‘broken’
Layoffs coming – Internal memos show the inkjet printer division is in worse straits than the company has revealed publicly
August , 2008 Hewlett-Packard Co.’s inkjet printer business, built on homegrown Oregon technology that spawned decades of high-tech, high-wage jobs in two Northwest cities, is drying up.HP campuses in Corvallis and Vancouver have already suffered as the company outsourced manufacturing work and pared jobs. Now, in detailed accounts of internal company meetings in April and June provided to The Oregonian, HP executives spell out in extraordinarily blunt terms the decline of what had long been HP’s most dependable and profitable technology — and the engine of its Northwest operations.”Our growth rate is negative. That means it’s shrinking,” HP Vice President Sam Angelos Jr. told Corvallis workers at an employee-only meeting in the spring.The hyper-secretive company has refused to publicly detail plans for job cuts or business strategies in Corvallis. It’s been years since HP would even discuss the number of employees there or at any other site.Workers there learned about an impending round of job cuts in late April. Broad outlines of the company’s plans soon leaked out, but HP dismissed those reports by saying that no decisions had been made.But according to the account of the April meeting, Angelos said HP planned to lay off as many as 300 workers, shutter a key production line and send its work to a contractor overseas.In that meeting, HP laid bare to manufacturing workers what it has not told outsiders: Basic parts of its printer business are, as Angelos put it, “broken.”
HP’s manufacturing operation in Corvallis is overfunded and underused, he said, and needs to reinvent itself to stay ahead of more efficient competitors — and other divisions inside the $100-billion-in-annual-sales company that want a slice of the printer group’s operating and research budget.”We have to make sure that we have a sense of urgency,” Angelos told employees. “There’s a great big bull’s-eye painted on us, and everybody wants a piece of that pie.”Asked for additional comment Thursday, HP declined to go into specifics but provided this written statement: “As a company, HP is focused on identifying and pursuing growth opportunities and maximizing efficiencies to create best-in-class solutions for our customers. Consistent with this strategy, the Imaging and Printing Group (IPG) will continue to consider changes that will serve to maximize its growth opportunities, to invest resources most appropriately and to ensure customer satisfaction, market success, and shareholder value.”Coming changes in the printer group cap a transformation at HP, which has relied on its printers when other parts of the company struggled. With printer sales falling and HP aggressively pursuing new opportunities in corporate services, the company is shifting priorities.
HP’s operations in Corvallis and Vancouver would seem likely to be big losers in that shift
Most of HP’s 2,500 employees in Corvallis focus on the company’s highly profitable inkjet printers, which the company developed there in the 1980s. HP had 10,000 employees and contractors in Corvallis as recently as a decade ago. A series of reorganizations and cost cuts marginalized the site economically, although it still plays a key role in developing HP technology.
The printer group — which also includes laser printers, scanners and other “imaging” technology — remains highly profitable, and sales are still growing. So from the outside, the crisis Corvallis managers describe isn’t readily apparent.Within the inkjet segment, though, the company paints a gloomy picture of falling printer and ink sales. Quick action is required, executives and managers said in meetings with employees, to reinvent the printer group as a smaller, leaner organization more focused on research.Changes also are expected at the Vancouver site, where HP employs more than 1,000 people. Earlier this year, HP put its 175-acre campus in east Vancouver up for sale with plans to lease back part of the site for at least five years.Other details of Vancouver’s changes are less clear. The site focuses on inkjet printer design and marketing but stopped printer manufacturing in the 1990s when HP outsourced that work.
HP was Silicon Valley’s original technology company, earning a reputation for innovative approaches to new ideas. In 1976, it exported that creativity to Corvallis, where the company’s engineers invented its inkjet technology while experimenting with calculator printers.Inkjets evolved from simple text printouts to full-color mosaics with clarity and brightness that eventually rivaled photo labs. As computers sprouted on desks in offices and homes around the country, then the world, HP printers popped up alongside them. In the late 1990s, the rest of the company ran into trouble as its computer business matured, prices fell and computing profits thinned.Under chief executive Mark Hurd, hired from NCR Corp. in 2005, HP has systematically cut jobs and costs and increasingly targeted its research at areas with the greatest profit potential. After slashing costs elsewhere in the company, Hurd is turning to the printer group. With less rapid growth, printer group chief Vyomesh “VJ” Joshi is less able to guard his own expenses behind buckets of profits.”VJ has very clear marching orders from Mark Hurd,” Angelos told Corvallis employees in April: All businesses, even big moneymakers, must improve sales and profits every year. With HP’s other businesses in PCs and corporate services now thriving, the company is telling employees that the inkjet division has two big problems:
People are buying fewer printers, printing fewer pages and therefore purchasing less of HP’s highly profitable ink.The company’s manufacturing operation in Corvallis — designed for high-volume output — is laboring under high fixed costs that can’t be cut without shedding many employees.”Because business is hurting so bad, we’re not utilizing our factory,” Angelos said.HP’s new variable-cost plan staffs the Corvallis site to current, lower demand levels and enables the company to add staff only at times it’s needed.To reduce costs, HP plans to close Fab 21, a manufacturing line on the company’s Corvallis campus, company officials said in both April and June, according to accounts of those meetings. HP will outsource the work overseas.HP also plans, officials said, to shut down some Corvallis manufacturing on weekends, instead of running factories all week long, as it does now. The move will trim the company’s overtime costs and, in turn, employee pay.The shakeup, they said, will reduce HP’s 650 Corvallis manufacturing workers by 35 to 45 percent — roughly between 225 and 300 jobs. HP gives several weeks to all workers designated for layoff to find new jobs in the company and severance payments to those who don’t.
HP remains the dominant inkjet maker, controlling 47 percent of the world market, according to industry researcher Gartner Inc. Its closest rival, Canon, has 18 percent.But competitors are making inroads, particularly in the U.S. Rising energy costs also are pressuring the printing business by boosting paper prices, according to Gartner’s Federico de Silva. Additionally, he said, younger computer users, turned off by long reports, prefer short summaries or online scanning.Gartner’s estimates suggest that overall printed pages haven’t actually begun a decline, de Silva said, but probably will about 2012.Just five years ago, printers produced about 80 percent of HP’s profits, according to Pacific Crest Securities in Portland. Today, printers provide about 40 percent of HP’s profits, the firm estimates, and the number is forecast to fall to a third after HP completes its pending $13.2 billion acquisition of Electronic Data Systems Corp., a corporate services giant.”Just as a percentage of their overall revenue, the printing operations become less and less meaningful,” Pacific Crest analyst Brent Bracelin said.Though the changes in Corvallis are painful, Bracelin said, they make sense.”From a Wall Street perspective,” he said, “moving to a variable-cost model is the right thing to do.”
HP set its cuts to begin this month and wrap up in May.
For Corvallis, they will further diminish what had long been the community’s major economic engine, other than Oregon State University. In recent years, HP has vacated three buildings on its 150-acre campus, and earlier this year, it gave one to OSU to use free for 20 years. The company is now looking for a tenant to lease Fab 21, the plant it plans to close next year, according to an official speaking in the June meeting.But in a June meeting with employees, HP manager Chris Camomile said the company remains committed to maintaining a presence in Corvallis, according to the account of that meeting.HP has a strong corps of skilled workers and engineers in Corvallis, and the site has contracted for work through 2013. Additionally, Camomile said, its labor costs are 15 percent lower in Corvallis than in San Diego, where much of HP’s printer group leadership works.The future is very bright for Corvallis,” he said. “I do recognize, though, that our future has changed from manufacture to R&D development, and that’s going to require a much smaller work force.”
Boise Not Mentioned in Latest HP Layoff Rumors
Layoffs could be coming at the Hewlett-Packard campuses in Corvallis and Vancouver. Details of an internal meeting reported today by The Oregonian newspaper suggest that H-P plans to lay off as many as 300 workers in the Northwest, shutter a key production line and send its work to a contractor overseas. The inkjet printers that are the focus of the Northwest-area campuses have long been among H-P’s most profitable and dependable technology. But H-P Vice President Sam Angelos Jr. told Corvallis workers this year that the manufacturing operation there is overfunded and underused. The California-based company has about $100 billion in annual sales.In Corvallis, H-P employees about 2,500 people, and in Vancouver, H-P employs more than 1,000 people. The focus in Vancouver is on inkjet printer design and marketing.