HP Plans to Cut 14,500 Jobs

Company hopes to save $1.9 billion a year with massive reorganization.

Peter Sayer, IDG News Service

Hewlett-Packard hopes to save $1.9 billion a year through a massive reorganization in which it will cut 14,500 jobs, or around 10 percent of its workforce. It will also link sales and marketing efforts more closely to business units, eliminating the Customer Solutions Group, which sold to enterprise customers, it said Tuesday.

Few positions will be cut in sales or research and development. Instead, HP will eliminate management layers and restructure support functions, for a saving of $1.6 billion a year in staff costs. It will also cut U.S. retirement benefit programs, saving a further $300 million a year, it said.

Most of the staff cuts will be made in central support functions such as human resources, finance, and IT. The others will be made in individual business units.

In the United States, longer-serving staff will be offered voluntary early retirement. Plans will vary in other countries, depending on local laws or the outcome of consultation with employee representatives, HP said.

Uneven Performance

HP's financial performance has been uneven in recent quarters. The company appears to have stemmed the losses in its PC and server groups, but those divisions are not as profitable as management and shareholders would like. HP has its printer business to thank for most of its recent profits, but the company trimmed positions from that group earlier this year in order to further reduce costs.

When the Customer Solutions Group is closed, sales staff there will transfer into three business units: Technology Solutions Group, Imaging and Printing Group, and Personal Systems Group. CSG was HP's point of contact with market segments such as the public sector, small and medium-size businesses, or consumers. Those relationships will also be divided between the three business segments, with the technology solutions group taking on public sector customers, the personal systems group handling small and medium-sized businesses, and the imaging group dealing with consumers, Hurd said in a conference call with analysts. CSG's head, Michael Winkler, will retire at the end of this month, and senior sales positions will be created in each of the three business groups.

Chief Executive Officer Mark Hurd separated the imaging and personal systems groups last month, undoing a change made by former CEO Carly Fiorina.

Within the company, morale is higher than outsiders would expect, despite the planned job cuts, Hurd said. He put this down to a hope that the company will go on the attack.

Getting Lean

The Palo Alto, California, company's business is increasingly reliant on low-margin lines like PCs and low-end servers. In order to compete with a lean company like Dell, HP would have to look into trimming positions in those divisions, said Charles King, principal analyst with Pund-IT Research in Hayward, California, in a recent interview.

When Hurd was hired on March 29, many financial analysts wondered if he would take on the big problem that HP has faced in the past few years: how to digest the acquisition of Compaq. Tuesday's announcement would be an indication that Hurd is planning to address strategy only after he has taken care of reducing costs and improving performance, said Cindy Shaw, senior analyst with Moors & Cabot, in a June research note predicting the layoffs.

Tom Krazit of IDG News Service contributed to this story.