HP to slash about 14,500 jobs

July 19, 2005

Reuters
Published on ZDNet News: July 19, 2005, 4:27 AM PT

Hewlett-Packard said Tuesday it will slash its work force by 14,500 jobs, or about 10 percent, the biggest move yet by new Chief Executive Mark Hurd as he seeks to boost the No. 2 computer maker’s profitability.

HP, which employs about 150,000 workers across the globe, said the majority of staff reductions will come in support functions, such as information technology, human resources and finance. The remainder will be made inside business units, in areas where work can be reduced by improving processes.

The cuts, which are expected to save HP $1.9 billion annually, are the biggest since former CEO Carly Fiorina slashed thousands of jobs after HP’s controversial $19 billion acquisition of rival Compaq Computer in May 2002.

Hurd has said that HP needs to get its costs more in line with other technology companies, such as Dell, the hyper-efficient No. 1 PC maker.

“They’ve gotten themselves in fighting shape here,” said Caris & Co. analyst Mark Stahlman, who said the announcement should eliminate uncertainty in the workforce as well. “I think this is going to give a big boost to morale internally.”

Its shares hit a high unseen since January 2004 on Monday, in anticipation of the announcement. The restructuring included changes to workers’ benefit plan and the elimination of the Customer Solutions Group, a standalone business group responsible for sales to business and public-sector customers.

Palo Alto, California-based HP said it would carry out the widely anticipated restructuring and job cuts over the next year and a half, during which it expects to record pretax restructuring charges of about $1.1 billion.

Beginning in fiscal 2007, HP expects ongoing annual savings of about $1.9 billion, composed of $1.6 billion in labor costs and $300 million in benefits savings. In fiscal 2006, HP expects savings of between $900 million and $1.05 billion.

The company said that the savings will be reinvested in the business to boost competitiveness, with some also expected to flow through to operating profit. The cuts inside business units were planned for areas where work can be reduced through streamlining and prioritization.

Analysts had been expecting as many as 25,000 job cuts from Hurd, who joined HP in April from NCR Corp. following the ouster of Fiorina in February.

The company has already trimmed jobs in its lucrative imaging and printing business. In May about 2,000 workers in that unit accepted voluntary severance packages.

HP’s fiscal third quarter concludes at the end of July.

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