HP: Is Whitman?s Ax As Big As IBM?s Gerstner?s?

Margaret (Meg) Whitman, the new CEO of Hewlett-Packard Co. (NYSE: HPQ), the No. 1 computer maker, decided to swing her ax Wednesday as the company reported dreadful second-quarter results. Whitman announced a new strategy:

First, the company will fire as many as 27,000 employees, about 8 percent of the payroll, over the next two years. The charge will be at least $1.7 billion in the current year ending Oct. 31, with at least $1.8 billion in charges in future years.

Next, Whitman, 55, wants to slash as much as $3.5 billion in annual costs within two years by the firings as well as corporate streamlinings of divisions.

Third, Whitman, in office only since September at the Palo Alto, Calif.-based giant, wants to write off $1.2 billion in the current third quarter as impairment for the costly, $20 billion acquisition of Compaq Computer in 2001.

That deal made HP No. 1 in PCs but also cost then-CEO Carleton (Carly) Fiorina, her job.

Then there may be more charges to come.

Now that she's swung the ax, the question is whether the Princeton-trained Whitman, who has a Master's in Business Administration from Harvard Business School, can do for HP what Louis Gerstner Jr. did at International Business Machines Corp. (NYSE: IBM) in 1993.

Back then, Gerstner, another Harvard MBA, was recruited into IBM as the No. 1 computer maker was nearing bankruptcy. He and new CFO Jerry York, who'd done wonders with Lee Iacocca at Chrysler, took a record, $8 billion charge for the Armonk, N.Y., company in the second quarter. The money was to cover costs of firing 60,000 people.

The charge was the biggest in IBM history. With hindsight, Gerstner saved the company by getting out of retail products, focusing on services and software and making oodles of money.

So the question for Whitman is: Is she Gerstner Redux?

No doubt, she has the smarts and focus, although she has no technical background. Clearly, she'll have to lay out some ideas for the company and where it's going.

We are making progress in our multi-year effort to make HP simpler, more efficient and better, Whitman said.

Meanwhile, the company announced net income slipped 24 percent to 80 cents a share on net income of $1.6 billion as revenue eased 3 percent to $30.7 billion.

Coming after poor reports by Cisco Systems (Nasdaq: CSCO), the No. 1 Internet products company, and Dell (Nasdaq: DELL), No. 3 in PCs, HP seems to indeed be a technology bellwether.

The shares rose immediately after Whitman's announcement. After the close, they jumped 5.5 percent to $22.10.