Why Most of HP's Layoffs Will Be on the Services Side

By Chris Preimesberger  |  Posted 2012-05-24 Print this article Print

NEWS ANALYSIS: As HP changes emphasis, will it relinquish some of its global services business to IBM so it can focus on research and development and building new Converged Cloud systems?

Hewlett-Packard, fresh off a tough day May 23 in which it announced a whopping 27,000 job cuts over the next two years, continues to revisit its overall mission, evaluate all its businesses, and stabilize its leadership. Can't argue with those best executive-type practices.

Looking closer at the job cut details, it looks very much like HP is trimming back much of its service business and planning to plow that savings back into its research and development, which had been cut way back for five years under Mark Hurd. Hurd was three CEOs ago, by the way, and he only left the company in August 2010.

Those 27,000 full-time jobs€”though a high number on the face of it€”represent only about 8 percent of its workforce of 349,600. Yet, when the jobs are all eliminated by the end of fiscal 2014, it will be the largest layoff in the company's 73-year history.

CEO Meg Whitman (pictured) and the HP board know they have to be the bad guys here. Everybody knows it. The questions are: 1) Who stays, and 2) who goes?

eWEEK learned from a trusted inside source that a substantial number of those cuts€”possibly as many as 15,000€”will come at the expense of the company's Texas-based HP Enterprise Services division, formerly known as Electronic Data Systems, or EDS. HP bought EDS, which was founded in 1962 by H. Ross Perot, for $13.9 billion in 2008. Palo Alto, Calif.-based HP said it expects to save as much as $3.5 billion per year from the job cuts and other internal fiscal measures.

HP is calculating a total of $129,629.63 for each of those 27,000 people, give or take a few dollars and people. That, of course, would include salary, benefits, retirement and other categories for each person.

Is HP Throwing in the Towel on Services?

Why exactly is HP cutting back so severely its service force? Is it giving up in its decades-long turf war with IBM, and allowing newer kids on the block (Oracle, Dell, EMC and Cisco Systems) to move in?

HP isn't talking at this time, but you can bet the answer would be a stout "no." The relevant terms here are "streamline" and "more efficient operations." HP is not only trimming a lot of service-related jobs, but it is also becoming a more efficient company internally in order to save costs.

It is well-known also that HP wants to invest heavily in its new Converged Cloud initiative to help refresh some of those thousands of data centers that need updates.

Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on Salesforce.com and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and DevX.com and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz

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