July 19, 2005
HP cutting work force by about 10 pct
By Duncan Martell
SAN FRANCISCO (Reuters) - Hewlett-Packard Co.
Tuesday said it will slash 14,500 jobs, or about 10 percent of
its work force, in a sweeping move by new Chief Executive Mark
Hurd to cut costs by $1.9 billion a year and compete better in
cutthroat computer and printer markets.
The cuts are the biggest since former CEO Carly Fiorina
slashed roughly 15,000 jobs after HP's $19 billion acquisition
of rival Compaq Computer in May 2002.
Hurd in an interview also said HP could write down the
value of the Compaq acquisition if it were merited, a move that
would not affect operating results but could be seen as an
admission that the deal had not succeeded as hoped.
"We would do that if the accounting led us to that," he
said, declining to say whether HP would take such action.
HP shares, which have risen recently in anticipation of the
job cuts, were down 1.4 percent on Tuesday.
HP, which employs 151,000 workers across the globe, said
the majority of the job cuts would come in support functions,
such as information technology, human resources and finance.
The remainder will come in its business units, which include
the PC, printer, server and software businesses.
The Palo Alto, California, company said it would carry out
the restructuring over the next year and a half, during which
time it expects to record pretax charges of about $1.1 billion.
Hurd has said HP needs to get its costs more in line with
those of other technology companies such as Dell Inc.
the No. 1 PC maker and one of HP's chief rivals.
"They've gotten themselves in fighting shape here," Caris &
Co. analyst Mark Stahlman said of the job cuts, adding that the
announcement 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 were down 34 cents at $24.58 in afternoon
trading. Since Hurd's first day on the job at HP, April 1, the
stock is up 18 percent, and it has rallied in the weeks leading
up to today's announcement. In the same period, Dell shares are
up 9.5 percent.
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 so far, he has chosen to keep working
on the PC business.
Some investors said they had been expecting more. "I was
expecting to hear a lot more changes in how they structure the
business," said Shawn Campbell, principal of Campbell Asset
Management. "If this is it, I'm a little underwhelmed."
Hurd in the interview said he was not working on "spinning
off any business" and that HP's focus "has been to make HP in
the short term the best it can be."
Hurd is no stranger to cost cuts. As CEO of NCR Corp.
machines, he also cut jobs and changed pension programs.
"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 includes changes to workers' benefit
plans and the elimination of the Customer Solutions Group, a
separate business group responsible for sales to business and
Beginning in fiscal 2007, HP expects continuing 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
The company said 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.
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)