Hewlett-Packard Co (HP) said on Monday it planned to slash 24,600 jobs over the next three years, nearly 8 percent of its work force, as it combines operations with Electronic Data Systems Corp (EDS), the technology-services company it recently acquired.
The cuts represent the Palo Alto-based company’s most aggressive move yet to streamline its operations under chief executive Mark Hurd, who engineered the US$13.9 billion acquisition to challenge IBM Corp for more of the lucrative, long-term business of helping companies manage their computing infrastructure.
Most of the cuts will come from within EDS’ ranks and nearly half will be jobs in the US, HP announced on Monday after the stock market closed. HP said it planned to eventually add about half the positions back as different jobs in different departments within the company.
Some of the areas expected to get hit include the finance, human resources and legal departments, areas where there are traditionally overlapping duties within combined companies.
Big cuts were expected when HP announced the deal with Plano, Texas-based EDS in May, but the severity of the reductions surprised some industry observers.
“The number, nearly 25,000 people, is a heck of a lot of overlap — that’s what I find surprising,” said analyst Bob Djurdjevic with Annex Research. “The deal does make sense, but my questions and doubts have to do with the execution and whether these cutbacks can really improve the profitability of EDS, that’s the bottom line.”
Djurdjevic said EDS had been cutting jobs before it was acquired by HP, and that some investors were concerned the cutbacks did not address a key problem for EDS in the need to ink more profitable deals, a challenge that now falls to HP.
HP had not previously detailed how many employees of the combined company would lose their jobs. Before the acquisition, HP had 178,000 people and EDS had 142,000, a total of 320,000.
HP expects to save US$1.8 billion per year from the cuts once the restructuring is complete. The company will incur a US$1.7 billion charge in the current three-month period, its fiscal fourth quarter, for a goodwill adjustment and other costs connected to the restructuring.
At a conference with analysts on Monday, HP chief financial officer Cathie Lesjak said the EDS deal was expected to add to HP’s net profit in the 2010 fiscal year.
Until then, HP is planning for the acquisition to reduce net income by US$0.17 to US$0.19 a share in the current quarter, which ends on Oct. 31, and US$0.06 to US$0.11 per share in the 2009 fiscal year, Lesjak said at the conference in San Francisco.
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