Hewlett-Packard is to shed 14,500 jobs; about 10 percent of its workforce. The company hopes that this action, which was predicted last week, will save US$1.9 billion a year. HP will also link sales and marketing efforts more closely to business units and is set to eliminate the Customer Solutions Group, which sold to enterprise customers.
Few positions will be cut in sales or research and development. Instead, HP will eliminate management layers and restructure support functions, for a saving of $1.6 billion a year in staff costs. It will also cut US retirement benefit programmes, saving a further $300 million a year.
Most of the staff cuts will be made in central support functions such as human resources, finance and IT. The others will be made in individual business units.
In the US, longer-serving staff will be offered voluntary early retirement. Plans will vary in other countries, depending on local laws or the outcome of consultation with employee representatives, HP said.
The company will spread restructuring charges of $1.1 billion over six quarters, beginning with the fourth quarter of its 2005 fiscal year.
HP won't benefit fully from the savings until 2007, but in its 2006 fiscal year it expects to save between $900 million and $1.05 billion, it said. About half of those savings will be turned into operating profit, the company said. In the year to 30 April, HP had revenue of $83.3 billion.
HP's financial performance has been uneven in recent quarters. The company appears to have stemmed the losses in its PC and server groups, but those divisions are not as profitable as management and shareholders would like. HP has its printer business to thank for most of its recent profits, but the company trimmed positions from that group earlier this year in order to further reduce costs.
CEO Mark Hurd separated the imaging and personal systems groups last month, undoing a change made by former CEO Carly Fiorina.
The moves give each group more control over its business, HP said.
The company's business is increasingly reliant on low-margin lines like PCs and low-end servers. In order to compete with a lean company like Dell, HP would have to look into trimming positions in those divisions, said Charles King, principal analyst with Pund-IT Research.
When Hurd was hired on 29 March, many financial analysts wondered if he would take on the big problem that HP has faced in the past few years: how to digest the acquisition of Compaq. this announcement would be an indication that Hurd is planning to address strategy only after he has taken care of reducing costs and improving performance, said Cindy Shaw, senior analyst with Moors & Cabot.
(Tom Krazit in San Francisco contributed to this story.)