Hewlett-Packard, the world’s number one PC manufacturer, announced today that they are closing their Russelsheim office in Germany and laying-off 850 people. This is a part of their multiyear restructuring plan that was announced on May 23, 2012.

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HP has to make major global decisions during this restructuring

This is strategy unfolding.

2011 indicated that HP needed to start looking at costs. Net revenues were up $1.2B while gross profit dropped $354M.  2012 was no better. The latest financial statements show that gross profit margins shrank by 0.7% since 2010 and now sit at 23.2%.

From a cost accounting perspective, gross profit is calculated by subtracting direct variable costs from revenues. For a service based product, human-capital is the most significant variable cost. The decision to shut down the Russelsheim office was an important move in an effort to reduce costs in their service revenues and increase their gross profit margins.

Something needed to be done. Services account for 34.9% of their net revenues.

This German office was a part of HP Enterprise Services, a global business and technology services division of HP. Since human capital is the source of cost reductions, we have to look at other HP Enterprise Services division, like the ones located in Switzerland. It would make sense if they decided to shut some of them down. We are still expecting a total of 29,000 people to be laid off globally.

Keep an eye on the story as the restructuring unfolds for HP.


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