Tuesday, July 19, 2005

HP to Cut Workforce by 10 %

HP to Slash Workforce by About 10 Percent

By Duncan Martell
Tuesday, July 19, 2005; 12:14 PM

SAN FRANCISCO (Reuters) - Hewlett-Packard Co. said on Tuesday it will slash 14,500 jobs, or about 10 percent of its workforce, in a sweeping move by new Chief Executive Mark Hurd to cut $1.9 billion a year in costs and compete better in cutthroat computer and printer markets.

The cuts are the biggest since former CEO Carly Fiorina slashed thousands of jobs after HP's $19 billion acquisition of rival Compaq Computer in May 2002. HP's shares, which have risen recently in anticipation of the job cuts, were down almost 1 percent on Tuesday.

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 PC, printer, server and software businesses.

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 and one of its chief competitors.

"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 were down 20 cents at $24.72 in early 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 the announcement.

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.

"The management changes announced today leave the structure of the company essentially unchanged and do not seem to signal a strategic shift in HP's thinking about its PC business," said Laura Conigliaro, a Goldman Sachs analyst, in a note to clients.

Speaking on a conference call with analysts, Hurd said, "I think this will make us simpler, nimbler and quicker." There are "no other incremental short-term announcements on the plan," he said.

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.

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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