HP to Cut 24,600 Jobs in Wake of EDS Deal

HP and EDS

HP (NYSE: HPQ) plans to cut 7.5 percent of its work force, or 24,600 jobs, seeking to realize savings from its recent acquisition of EDS, the company said on Monday.

The company said it would carry out the cutbacks over the next three years, while replacing about half the jobs in new areas of its services business. It announced the plan ahead of a meeting with Wall Street analysts to detail the merger plans.

Nearly half of the job reductions will take place in the United States, the Palo Alto, Calif.-based company said. EDS was headquartered in Plano, Texas, near Dallas.

“We are good at integrating companies … I believe we will do it well,” Mark Hurd, HP’s chairman and CEO, told financial analysts at the company’s headquarters.

The $13.2 billion acquisition of EDS, a deal announced in May and closed in August, made HP the world’s second-largest provider of technology services, up from No. 5 previously.

Archrival IBM (NYSE: IBM) is No. 1 in computer services, and HP’s strategy takes aim at this dominance. The deal bolsters HP’s business in the United States and Britain, two strong market for EDS, both among commercial clients and in government agencies. EDS also gives HP the No. 1 position in “applications management” — providing maintenance and outsourced management of older software systems.

HP said it would take a charge of $1.7 billion in the fiscal fourth quarter ending in October. Accounting for goodwill will cost $1.4 billion, while cost of the restructuring will involve anther $300 million.

HP estimated $1.8 billion in annual cost-savings once the three-year cost-cutting program is completed.

Disruptive role

HP’s shares fell 3.5 percent to close at $45.33 ahead of the analysts’ meeting Monday afternoon, amid a broad sell-off.

Following the news, HP shares edged up 11 cents to trade at $45.44 in after-hours trading.

Ann Livermore, executive vice president of HP’s Technology Solutions Group, told the meeting the merger with EDS would help the company compete more aggressively for big business customers in a market that will be worth $451 billion by 2010.

She said the combination of HP and EDS position the combined company to play a disruptive role in the computer and technical services market, now dominated by IBM.

HP is well positioned to provide companies looking to cut the costs of managing their technical systems through services such as virtualization and server automation.

The company can also attack the fast-growing centralized data center market with its market-leading position in blade servers and heavy investments in recent years in network management software, she said.

“This is a market looking to be disrupted,” Livermore said. “We have got ourselves positioned to be where the market is moving … The core trends are very much playing to HP’s strengths.”

At the time the merger was announced in May, HP counted 178,000 employees on its books and EDS had 142,000 employees.

Including the value of common stock, options and restricted stock units, the enterprise value of the deal totals $13.9 billion. The deal closed last month.

HP said the vast majority of the cuts would focus on eliminating overlapping jobs at EDS in corporate functions such as legal, accounting, information technology and human resources, as well as excess office space.

Work-force reduction plans will vary by country, based on local legal requirements and consultation with works councils and employee representatives, HP said.

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