Hewlett-Packard to cut 14,500 jobs in restructuring plan

Tuesday, July 19th 2005, 8:38 am

By: News On 6

SAN JOSE, Calif. (AP) _ Computer maker Hewlett-Packard Co. on Tuesday said it will cut 14,500 jobs, about 10 percent of its full-time staff, as part of a restructuring plan designed to save $1.9 billion annually and boost business performance.

The job cuts will occur over the next six quarters, the Palo Alto-based company said.

Most of the job cuts will come in support functions _ such as information technology, human resources and finance _ and the rest will be made inside business units.

The company said job cuts in sales positions will be minimal, and there will be little change to the headcount in research and development.

As part of the cuts, HP said it will offer a voluntary retirement program to longer-serving employees based in the United States.

The company also said that as of January 2006, it will freeze the pension and retiree medical-program benefits of current employees who do not meet defined criteria based on age and years of company service. Instead, HP plans to boost its matching contribution to most employees' 401(k) plans to 6 percent from 4 percent.

The company said these changes won't affect benefits currently received by retirees or eligible employees who are longer-serving and close to retirement age. Existing employees will retain benefits they have already earned.

Shares of HP closed Monday at $24.92, down 2 cents, on the New York Stock Exchange. In pre-market activity Tuesday, they were up 18 cents. The company's stock has risen about 19 percent since Jan. 1, though it remains well below its peak during the technology boom.

The restructuring, which has been anticipated since former NCR Corp. CEO Mark Hurd was named chief executive less than four months ago, is within the range expected by most analysts. A few suggested the number could be as high as 25,000.

In May, Hurd described the cost structure at some of the sprawling company's divisions as ``off benchmark.''

``After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential,'' Hurd said in a statement Tuesday. ``We can perform better _ for our customers and partners, our employees and our shareholders _ and we will.''

HP's restructuring does not appear to be a major shift from the company's strategy of competing in a broad area of the technology industry, from personal computers and printers to corporate servers and consulting.

That's in line with statements made by HP's board when it fired CEO Carly Fiorina in February and hired Hurd to replace her. Board members indicated they were disappointed in her ability to execute the strategy, not the strategy itself.

The problem is that it faces formidable competition at both the high end and low end from rivals that manage to squeeze higher profits. At the same time, HP's highly profitable printer and ink business is coming under increasing threat.

In corporate servers, software and consulting, HP competes against International Business Machines Corp. and its legions of consultants who can advise corporations on technology buying decisions and point to IBM's offerings.

At the other end is Dell Inc. and its efficient PC manufacturing and distribution system that HP has had difficult matching. On Monday, the research firm IDC report Dell's PC sales grew by 23.7 percent while No. 2 HP posted an increase of just 16.3 percent.

In fact, HP's PC division has long been rumored as a spin-off candidate, especially after the $19 billion acquisition of Compaq Computer Corp. failed to pay off as Fiorina had promised before her ouster.

Beginning in fiscal 2007, HP expects to save about $1.9 billion a year from the restructuring, made up of $1.6 billion in labor costs and $300 million in benefits savings. In fiscal 2006, HP expects savings of between $900 million and $1.05 billion from the restructuring.

The company said about half the savings will be used to ``offset market forces'' or be reinvested in the business to strengthen HP's competitiveness. The remainder is anticipated to add to operating profit.

HP plans to record pretax restructuring charges of about $1.1 billion over the next six quarters, beginning in the fourth quarter of fiscal 2005. This excludes a previously announced $100 million restructuring charge to be taken in the third quarter.

HP also plans to dissolve its Customer Solutions Group, which is responsible for sales to small and medium-size businesses and public-sector customers. It will merge the sales function directly into three individual business units _ Technology Solutions Group, Imaging and Printing Group and Personal Systems Group.

Following the dissolution of CSG, Michael J. Winkler, 60, will retire as executive vice president of CSG, after nearly 10 years at HP and Compaq.