Hewlett-Packard officials are planning to pump $1 billion into the company's Enterprise Services business, a move intended to increase the amount of automation in its data centers and one that will result in 9,000 jobs being cut.
HP officials said June 1 that they expect the move to help the company gain ground in a highly competitive space, save $500 million to $700 million and cut in half the number of data centers used by HP customers.
HP's stated goal is to increase the number of automated services offered to customers, which will mean the need for fewer people inside the data centers themselves.
It's the best way to remain competitive in a industry dominated by IBM and in which other industry giants such as Dell and Xerox are making a push, according to Ann Livermore, executive vice president of HP's Enterprise Business group.
"We have an opportunity to further accelerate our competitive advantage," Livermore said in a conference call with reporters and analysts June 1. "We think the next 10 years are going to be about who can automate the delivery of services."
HP augmented its Enterprise Services business in May 2008 when it bought EDS for $13.9 billion. Since that time, HP has worked to integrate the massive services company into its business, including by slashing jobs.
Officials said this latest move is the second step in this integration effort. HP can combine data centers and IT networks, and in the process modernize and automate the IT processes within the facilities.
HP already has experience in consolidating data centers. Four years ago, the company announced an ambitious plan to whittle down the number of its global data centers from 85 to six. The experience gained from that effort is showing itself in the current plan, according to Forrester Research analyst John McCarthy.
"HP is applying the lessons learned from their own data center rationalization process to EDS and its customers," McCarthy said in a statement. "In the long term, this is indicative of the market's movement away from custom offerings in the light of 'as-a-service' pricing and deflation."
Frank Gillett, another Forrester analyst, agreed, but said there will be some differences. In HP's consolidation project four years ago, the company put everything into six U.S.-based data centers. Now the data centers that remain after this current project will be based all over the globe.
Louis Miscioscia, an analyst with equity research company Collins Stewart, said in a report HP's moves made sense, particularly considering the competition from IBM and others, and EDS' lack of investment in automation technology in its data centers before the HP acquisition.
"Going back to when HP acquired EDS in 2008, we had been very supportive of the tactical and strategic importance of this move from day one," Miscioscia wrote in the report.
HP, which has about 300,000 employees worldwide, will lose 9,000 data center positions over the next few years, but will hire another 6,000 people in such areas as sales for the Enterprise Services business.
Forrester's Gillett said for the most part HP hasn't done a lot of streamlining since buying EDS, so an initiative such as this is not surprising.
"If you do the job right, you are taking people out of the data center because you are automating and standardizing functions in the data center," Gillett said. "The 6,000 jobs they're bringing in are on the front-end sales end of things."
What HP is going to have to do in the future, he said, is start filling in the details of the data center plans, such as where the facilities will be located, what incentives customers will have to go along with any changes and what jobs will be lost.
Services revenues for HP hit $8.7 billion in the company's fiscal second quarter, a 2 percent increase over the same period in 2009.
However, those revenues didn't climb nearly as fast as those in other parts of the business, such as Enterprise Storage and Servers, which saw a 31 percent jump, or Personal Systems Group, which had a 20 percent increase.
Still, services remains an attractive place for vendors wanting to attract customers that are looking for a single place for hardware and software purchases in a cloud computing world.
A year after HP's acquisition of EDS, Dell bought Perot Systems for $3.9 billion to add to its services capabilities. Xerox jumped into the fray in September of 2009, when it bought Affiliated Computer Services for $6.4 billion.