HP Announces Massive Job Cuts

Hewlett-Packard Co. will lay off nearly 10 percent of its staff in a restructuring plan designed to increase its ability to compete in the computer market and boost profitability.

The Palo Alto, Calif., computer giant on Tuesday announced the plan, which includes cutting 14,500 positions from is global work force of 150,000, and reorganizing its operations around three main product groups, which will contain their own sales and marketing departments. The effort will save $1.9 billion annually, HP said in a statement.

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HP, which bought Compaq Computer Corp. in May 2002, is peeling back the layers on the onion. Due to the acquisition—and Compaqs earlier buying spree, which included Digital Equipment Corp. and server maker Tandem—HP found it had redundancies in many areas of its product groups. The restructuring effort strives to reduce some of those redundancies to reduce costs and at the same time make the business units more competitive when going after sales.

“After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential,” Mark Hurd, HPs CEO, said in a statement. “We can perform better … and we will.”

Although widely expected, following comments by Hurd, NCRs former CEO who joined HP in March, the plan is less severe than some had predicted. Although HP has had several rounds of layoffs since purchasing Compaq, analysts predicted it would cut as many as 25,000 jobs as part of the new plan.

HP said it will aim most of the job cuts at specific areas of its business, offering a voluntary retirement program in the United States. Most of the cuts will come from its finance, human resources and information technology departments, in addition to eliminating redundancies inside its business units. Sales and research and development will have fewer job cuts, given HPs priorities, the company said.

HP, which maintained a separate group to broker sales to businesses and public-sector clients, will eliminate the group and incorporate those salespeople into its various business units. It will go forward with its Technology Solutions Group, which includes servers, storage and services; the Imaging and Printing Group, which puts out printers, cameras and related gear; and its Personal Systems Group, which produces PCs.

HP said that half of the annual savings, most of which will come from labor costs, will be reinvested in its business, in an effort to make it more competitive. The rest will become operating profit, the company said.

HP will also modify its benefits plan, freezing the pension and retiree medical program benefits of employees who dont meet criteria for age and years of service, instead putting more emphasis 401(k) plans.

To pay for the restructuring, HP will take pre-tax charges of $1.1 billion over six quarters, starting in the fourth quarter of its fiscal 2005.

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