Computer giant Hewlett-Packard, moving quickly to integrate newly acquired Electronic Data Systems (EDS) into its portfolio, has announced that it will cut 24,600 jobs, or 7.5 percent of its workforce, over the next three years.
Both HP and EDS are prominent in the healthcare sector, providing hardware, software and outsourcing services.
The news, announced Monday, stunned Wall Street on a day that had already seen the Dow plunge more than 500 points. It signaled HP President and CEO Mark Hurd's urgency in making his latest acquisition, the $13.25 billion purchase of Plano, Texas-based technology-services firm EDS, work in the face of increased competition from the likes of IBM.
HP's shares dropped 3.5 percent following the announcement, closing Monday at $45.33. Following the analysts' meeting, stocks rose in after-hours trading to $45.88, but had fallen to $45,60 as of 10:15 a.m. Tuesday morning.
Analysts had expected job losses in the wake of the merger, but few had forecast such a drastic number. As a result, some analysts today said the move could make HP a leaner, meaner company that will hold up better in the long run.
"I can assure you, we will nail this integration," Hurd told reporters Monday in announcing the job cuts. "We do believe the synergized companies are in a pretty damn strong market position."
Officials say most of the job cuts will come from EDS, and nearly half will be in the United States - though officials emphasized that about half of the jobs lost would be added back as services and consulting positions in different parts of the company. The departments most affected would be those duplicated in both HP and EDS - legal, human resources, real estate and information technology.
The merger was first announced in May and completed just last month, adding a reported 142,000 workers (47,0000 in the United States) to HP's 178,000-person payroll. EDS had been cutting positions and looking to shift jobs overseas prior to the merger. The acquisition boosted HP to the world's second largest provider of technology services, up from fifth and behind only IBM, and makes the company the world's largest provider of applications management services.
HP officials said they expect to save $1.8 billion a year from the cuts once the restructuring is complete, but that won't be seen in the company's net profits until 2010. In a conference call with analysts on Monday, HP Chief Financial Officer Cathie Lesjak said that company would take a $1.7 billion hit in the current quarter for a goodwill adjustment and other costs and will see its net income reduced by 17 to 19 cents a share in this quarter and six to 11 cents per share in the 2009 fiscal year.
Aside from special costs, Lesjak said the restructuring would add 18 to 22 cents per share to its earnings in fiscal 2009 and 38 to 42 cents per share in fiscal year 2010.
Ann Livermore, executive vice president of HP's Technology Solutions Group, told analysts Monday that the combined company will target the computer and technical services market, which she called "a market looking to be disrupted," She said the company is positioned to help clients improve their IT alignments through virtualization and server automation, as well as data center operations.
"We have got ourselves positioned to be where the market is moving," she said. 'The core trades are very much playing to HP's strengths."
HP and EDS had a combined $38.9 billion in services revenue during the 2007 fiscal year. In contrast, IBM reported $51.4 billion in technology and business services revenue last year.
Meanwhile, HP's closest competitor in the personal computer market, Dell, followed HP's announcement with some gloomy news of its own. The company has seen its stock price slide 27 percent so far this year, and said it expects to incur costs as it "realigns its business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions."
"The company is seeing further softening in global end-user demand in the current quarter," Dell officials reported Tuesday.
Will these cuts make HP a worthy rival for IBM? What does each company do better than its competitor? Send your comments to Managing Editor Eric Wicklund at eric.wicklund@medtechpublishing,com.