Hewlett-Packard's plan to cut 14,500 jobs and overhaul its retirement benefits not only chisels away at its high corporate costs but also...
SAN JOSE, Calif. — Hewlett-Packard’s plan to cut 14,500 jobs and overhaul its retirement benefits not only chisels away at its high corporate costs but also its reputation as one of Silicon Valley’s most employee-friendly firms.
The computer and printer maker once known for treating employees like family said yesterday that it will save $1.9 billion a year as it trims its global work force of 151,000 by 10 percent over the next 18 months. It’s needed to stay competitive with efficient rivals, executives said.
The problem is it’s expensive to keep workers employed at unnecessary or redundant tasks and offer generous retirement benefits when competitors do not. But that puts it in conflict with at least part of the corporate culture known as the “HP Way.”
“An HP identity crisis? Kind of,” said Frank Gillett, an analyst at Forrester Research. “They need to rebuild who they are and what they stand for. Part of that has got to be what their compact with the employee is.”
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But other analysts — and HP executives — point out that a company with lofty goals and philosophies benefits no one if it’s not making money.
“We know that only by having a competitive cost structure can we compete aggressively in the marketplace, thereby growing the company for our employees, customers and shareholders,” said Chief Executive Mark Hurd, who has been on the job four months.
HP did not specify where jobs will be lost. But executives said support jobs will be most affected — in information technology, human resources and finance — as they weed out inefficiency.
The company has 2,100 employees in several offices in Washington state. The largest, in Vancouver, includes employees in HP’s imaging and printing group, as well as in sales and marketing, according to Ryan Donovan, an HP spokesman. In Oregon, HP employs 3,500 people. Its Corvallis office focuses on research and development and imaging and printing functions.
CEO Hurd was hired away from NCR with a mandate to perform painful surgery that HP’s board had sought but failed to obtain from Carly Fiorina. The board fired Fiorina as CEO in February.
Yesterday’s announcement was just the latest in a series of moves by the Palo Alto company to become more competitive in an industry dominated by lower-cost rivals. Critics contend that such moves have obliterated the workplace philosophy espoused by William Hewlett and David Packard — the college friends who founded HP in 1939.
But Hurd, like his predecessor, argues that the changes are necessary. HP executives point out Hewlett and Packard’s “HP Way” also includes achieving profits, market leadership and growth as well as the commitment to employees.
Rivals including Dell in computers and IBM 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.
Though HP has remained largely profitable, its stock has underperformed those of most of its rivals.
Shares of HP fell 40 cents to close at $24.52 yesterday. The company’s stock has risen some 19 percent since Jan. 1 but remains well below its peak during the technology boom.
“Our objective is to create a simpler, nimbler HP,” Hurd said.
Beginning in January, HP will freeze the pension and retiree medical-program benefits of current employees who don’t meet defined criteria based on age and years of company service. The company said it instead plans to boost its matching contribution to most employees’ 401(k) plans to 6 percent from 4 percent.
HP said the 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.
Some analysts see the restructuring as just the first of several steps needed before HP can realize its potential.
“This is a triage,” Gillett said. He said Hurd was taking the first steps of getting costs in line.
Left unresolved, however, is how HP can turn its size and position into new sales and convince customers that its products best offerings from Dell or IBM.
For years, HP has derived most of its profits from the sale of printers and ink. In an attempt to strengthen its computer offerings, HP acquired Compaq Computer in 2002 in an acrimonious proxy battle.
The $19 billion purchase didn’t reap the benefits Fiorina promised, and the company briefly considered splitting itself up into several parts. Just before Fiorina’s firing, she merged the weak PC business with the profitable printer division — a move Hurd reversed.
“HP has been a fairly messed-up company over the last few years,” said Mark Stahlman, an analyst at Caris & Co.
Seattle Times technology reporter Tricia Duryee reported on HP’s Washington and Oregon presence.