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HP to slash workforce by about 10 pct

July 19, 2005

By Duncan Martell

SAN FRANCISCO (Reuters) – Hewlett-Packard Co. said
on Tuesday it will slash its workforce by 14,500 jobs, or about
10 percent, the biggest effort yet by new Chief Executive Mark
Hurd to give the computer and printer maker an edge in
cutthroat technology markets.

HP, which employs 151,000 workers across the globe, said
the majority of cuts would come in support functions, such as
information technology, human resources and finance. The
remainder will come in its business units, which include its
computer server and its software businesses.

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 Inc. ,
the No. 1 PC maker.

“They’ve gotten themselves in fighting shape here,” said
Caris & Co. analyst Mark Stahlman, adding that it dispels
uncertainty, which had been frustrating for some in HP’s
engineering culture. “I think this is going to give a big boost
to morale internally,” he said.

HP shares hit a high unseen since January 2004 on Monday,
in anticipation of the announcement. On Tuesday, its shares
traded at $25.10 in premarket trade, according to Inet, up from
Monday’s close of $24.92.

Analysts have pressed HP for further job cuts or to spin
off its lucrative imaging and printing group or divest its
personal computing business, where costs are still higher than
Dell’s. But Hurd, in recent management announcements, has
separated the printing and PC units, which were combined under
Fiorina, suggesting that he’s chosen so far to keep working on
the PC business.

Hurd is no stranger to cost cuts. As CEO of NCR Corp.,
which makes retail check-out registers, he took tough decisions
to cut staff and change pension programs for retired employees.

“He’s come to some decisions very quickly” said Tim
Ghriskey, chief investment officer of Solaris Asset Management,
which has $800 million in assets under management. “Ten percent
of the employees is a major cut, but he’s shown himself
historically to make tough decisions to restructure companies.
He’s made a tough decision here.

The restructuring included changes to workers’ benefit
plans and the elimination of the Customer Solutions Group, a
separate business group responsible for sales to business and
public-sector customers. As part of the announcement, Mike
Winkler, former chief marketing officer for HP, and a long-time
Compaq veteran, will retire from the company, HP said.

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.

(Additional reporting by Nicole Volpe in New York)




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