As part of its strategy, the computer and printer maker said Tuesday that it will lay off 14,500 workers, or about 10 percent of its staff, under a restructuring plan designed to bring the company's costs in line with those of competitors like Dell and IBM.
HP said the broad changes will save it about US$1.9 billion each year starting in the summer of 2006. In its current fiscal year, the company expects to save between US$900 million and US$1.05 billion.
Although the job cuts announced Tuesday will be felt throughout the company, the majority of staff reductions will come from sales and from support functions, such as IT, human resources and finance, Palo Alto, Calif.-based HP said.
Mark Hurd,
CEO, HP
"Our goal is to create a simpler and nimbler HP," Chief Executive Mark Hurd said during a conference call Tuesday, noting that the changes will be staggered over the next 18 months.
According to Martin Gilliland, research director at Gartner Asia-Pacific, the company's restructuring is a "positive step forward" to improve HP's performance and customer relationship.
"This reflects the same fundamental approach they have consistently represented for the last year, with no change in strategy, no change to products and initiatives, and no split of the business into separate entities," he said. "The reductions appear aimed mainly at inefficiencies within the company and aimed carefully to avoid impacting generation of demand, customer satisfaction or revenue levels."
"We project no significant risk to customers of HP as a result of these changes. Short term morale and anxiety issues, common to any large scale reduction in workforce or major reorganisation, should not be severe and should fade away as details of the cuts are released. While we anticipate competitors attempting to exploit these distractions, they should not have any material impact on HP success," Gilliland added.
The restructuring is the most significant move Hurd has made since he replaced Carly Fiorina less than four months ago.
Employees are not expected to be immediately notified of their status but may get a greater sense of their place at the printer and computer maker sometime later in the week--after HP executives convene for more high-level discussions. Executives met over the weekend to nail down the number of layoffs and to decide which departments would be most affected, according to a source close to the company.
The announcement was telegraphed so far in advance that some employees had begun referring to the restructuring and layoffs as "The Big One."
HP currently has 150,000 employees, the same as it did 18 months after completing its acquisition of Compaq Computer.
As previously expected by some analysts, HP is also putting a freeze on its pension and retiree medical-program benefits for employees who do not meet defined criteria based on age and years of company service, starting in January 2006. Instead, the company said it will boost its matching contribution to most employees' 401k plans to 6 percent from 4 percent.
The US$1.9 billion in expected annual savings is split between US$1.6 billion in labor costs and US$300 million in benefits expenses.
HP said it expects to spend about US$1.1 billion over the next year and a half on the restructuring, excluding a US$100 million restructuring charge announced earlier this year.
The company said it will also dissolve its Customer Solutions Group, a standalone division that had been responsible for sales to corporations, small and medium-size businesses and public-sector customers. Instead, HP said it will merge its sales teams into the company's three main business units. Senior sales positions will be added to each business segment.
At the same time, Michael Winkler, 60, will retire from his position as executive vice president of the group, the company said. Winkler had been trying to retire for some time, after nearly 10 years at HP and Compaq and more than 35 years in the industry, a representative with HP said.
ZDNet Asia's Eileen Yu contributed to this report.
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