Hewlett-Packard Co. said today it will cut 14,500 jobs and overhaul its retirement program in a restructuring plan designed to save $1.9 billion annually and bring costs closer to those of competitors.
SAN JOSE, Calif. — Computer and printer maker Hewlett-Packard Co. said today it will cut 14,500 jobs and overhaul its retirement program in a restructuring plan designed to save $1.9 billion annually and bring costs closer to those of competitors.
The cuts — about 10 percent of its global work force of 150,000 — will occur over the next six quarters. Most will affect support jobs such as information technology, human resources and finance.
“Our objective is to create a simpler, nimbler HP with … clear accountability and greater financial flexibility,” said HP CEO Mark Hurd today.
The restructuring had been anticipated since Hurd, former longtime chief executive of NCR Corp., took the new job four months ago after HP’s board fired Carly Fiorina.
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HP competes in a broad area of the technology industry where rivals including Dell Inc. in computers and IBM Corp. in consulting services have managed to squeeze higher profits. At the same time, HP’s highly profitable printer and ink business is coming under increasing threat.
HP said in announcing the cuts today that sales positions would be minimally affected, and the headcount would be little changed 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 beginning in January, 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 lost 3 cents, to $24.89, in Monday morning trading on the New York Stock Exchange. The company’s stock has risen about 19 percent since Jan. 1, though it remains well below its peak during the technology boom.
Just prior to Fiorina’s departure, the company merged its printer and PC group — a move Hurd reversed last month.
In May, Hurd described the cost structure at some HP 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 today. “We can perform better — for our customers and partners, our employees and our shareholders — and we will.”
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 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.
“HP has been a fairly messed up company over the last few years,” said Mark Stahlman, an analyst at Caris & Co. “The history of the company got scrambled. A lot of projects got thrown together. Then it only got worse at the end when services and enterprise were coupled and PCs got thrown into printing.”
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 the CSG, Michael J. Winkler, 60, will retire as executive vice president of CSG, after nearly 10 years at HP and Compaq.