HP Announces 24,600 Layoffs in Wake of EDS Acquisition

IDG News Service —

Hewlett-Packard (HPQ) will lay off about 24,600 employees over the next three years in an effort to streamline the company following its US$13.9 billion acquisition of Electronic Data Systems last month, the company announced Monday.

The layoffs will be part of a three-year restructuring program, HP said in a statement. The company will lay off about 7.5 percent of its workers during that time, with nearly half of the reductions coming from HP's U.S. workforce, HP said. About half the cuts will take place in 2009.

Half of the positions will eventually be replaced, the company said.

"I can assure you, we will nail this integration," HP Chairman and CEO Mark Hurd told financial analysts in a meeting at HP's headquarters that was webcast. The company has mastered integration while buying 30 companies in the past three-and-a-half years, he said.

"We do believe the synergized companies are in a pretty damn strong market position," Hurd said.

The restructuring program is expected to save HP about US$1.8 billion each year, HP said. HP will take a $1.7 billion charge in the fourth quarter of 2008 related to the restructuring program.

The acquisition of systems integrator EDS was intended to give HP a comprehensive portfolio of IT products to help customers manage and improve their technology systems, HP said.

"HP now has the broadest technology capabilities in the market to meet customer needs today and in the future," Hurd said in a prepared statement. "HP has a strong track record of making acquisitions and integrating them to capture leading market positions."

In addition to the job cuts, HP plans to cut costs through synergies in real estate, IT infrastructure and procurement contracts, Hurd said. The integration team has had about 500 full-time and 1,000 part-time members, according to HP.

HP expects EDS to add about $3.5 billion in revenue in the fourth quarter of fiscal 2008, ending in October. In fiscal 2009, it should add between $21.1 billion and $21.3 billion, and in the following year, between $21.7 billion and $22.1 billion.

Costs of the deal will cut HP's earnings per share by between $0.17 per share and $0.19 per share in the fourth quarter, and between $0.06 and $0.11 in fiscal year 2009. By fiscal year 2010, it should add between $0.11 and $0.16 per share, the company said. The company still stands by the fourth-quarter forecast it gave after announcing third-quarter results on Aug. 19.

The acquisition has been well-received overall within EDS' Agility Alliance, a group of partners that includes HP rivals such as Sun and Dell, Hurd said. Most members, even those considered competitors, have reacted favorably, he said, but "a couple" have been less welcoming, he said. Following the acquisition, HP will not force its own products on all its services customers, Hurd said.

Ongoing cost-cutting efforts at HP even before the EDS deal have prepared HP to carry out the coming cuts appropriately, Hurd said. The company has cut its costs twice as much in 2008 as in the year before and will cut even more next year, he said.

"This is a really tough day for us," Hurd said. "As easy as it is to put numbers on paper ... We've got to go do tough stuff."

HP shares (HPQP) were up $0.37 at $45.70 in after-hours trading on Monday after falling $1.64 during the regular trading day on the New York Stock Exchange.