Hewlett-Packard to Cut 14,500 Jobs

Updated from 7:22 a.m. EDT

Hewlett-Packard(HPQ) detailed a broad restructuring Tuesday that will result in the elimination of 14,500 jobs over the next six quarters.

The company, struggling to rein in costs under new CEO Mark Hurd, hopes to save $1.9 billion annually from the actions, which also include aligning sales and marketing operations with their respective manufacturing units. Shares slipped 0.9% to $24.71 on the widely expected announcement.

The layoffs amount to 10% of H-P's workforce and will result in pretax restructuring charges of about $1.1 billion through 2006. Most of the charges will appear in the company's fiscal fourth-quarter financial report and executives declined to comment about business demand during the third quarter, which ends this month. The company expects annual savings of $1.9 billion starting in 2007, including $1.6 billion in reduced labor costs and $300 million in benefit savings.

The majority of the layoffs will be among support functions including information technology, human resources and finance. Reductions in sales and research and development will be minimal, with cuts that occur within business units coming in areas where "work can be reduced by improving process and re-prioritzing existing tasks," the company said.

Starting in January, H-P will freeze the pension and retiree medical benefits of most current employees. In return, the company will raise its matching contribution to 401(k) plans to 6% from 4%. These changes will amount to a onetime credit of $150 million to $200 million in the fourth quarter.

"Getting the infrastructure right was the priority here," says Hurd. "Our objective is to create a simpler, nimbler H-P, with fewer matrices, clearer responsibility and greater financial responsibility."

These aren't the first round of cuts for H-P and Hurd acknowledged that some of the planning work involved in the latest restructuring had already been done. During the first half of the fiscal year, H-P's workforce was culled by 1,600 employees, with another 1,400 job cuts slated to take place through October. These cuts were budgeted to cost $236 million. As of the end of October 2004, H-P's previous fiscal year, the company employed 151,000 people.

The company's shares are up 26% to nearly $25 since Hurd joined H-P, and the expectation of cost reductions has helped lift the stock to its current 16-month high. H-P hasn't traded above $26 for the past four years.

Mark Morris, lead technology analyst for NWQ Investment Management, a $34 billion-in-assets unit of Nuveen Investments, said the job cuts will help rein in H-P's cost structure, but they don't help to stimulate growth. "Job cuts don't necessarily get you to where you need to be," Morris says. "I'm actually more interested in what else he has up his sleeve."

To that end, Hurd said one must come before the other. "Cost reductions and revenue growth go hand-in-hand, and we know that only by having a competitive cost structure can we compete aggressively in the marketplace, thereby growing the company for employees, customers and shareholders," he says.

But Hurd noted that more work remains to be done. "There is no doubt that there are opportunities for us to be more effective and more efficient in other areas that have yet to be described here," he says.