HP Announces Significant Job Cuts After EDS Acquisition

While many may have viewed the acquisition of Electronic Data Systems (News - Alert) Corp. by Hewlett Packard as a positive move for the company, most were well aware that job cuts would be likely once the two companies were combined. But, as AP Writer, Jordan Robertson reported, the size of the cuts has come as quite a shock.

The combined company expects to cut 24,000 jobs over the next three years – or nearly 8 percent of HP’s 320,000 employee workforce. While this does present potential cost savings for HP that could be reflected in its stock price, the overall impact on moral could have a damaging effect.

Bob Djurdjevic of Annex Research, told Robertson that he was surprised at the magnitude of the cuts. Djurdjevic pointed out the EDS (News - Alert) had been cutting jobs before HP bought it and some investors believe these cutbacks weren’t really addressing the problems for EDS. The company needed to ink more profitable deals and now the task falls to HP.

These cuts are the most aggressive cost-cutting move to date under HP Chief Mark Hurd. He is the mastermind behind the $13.9 billion acquisition that challenged IBM (News - Alert) for more of the lucrative, long-term business of helping companies to manage their computing infrastructure. 

While EDS employees will bear the brunt of most of the cuts, nearly half of those jobs will be in the U.S. HP reported that it expects to eventually add roughly half of those positions back as different jobs in different departments within the company. Those areas most at risk are finance, human resources and legal.

These cuts are expected to save HP $1.8 billion per year once restructuring is complete. The company will incur a $1.7 billion charge in its fiscal fourth quarter for a goodwill adjustment and other costs connected to the restructuring.

While this acquisition is expected to add to HP’s net profit in the 2010 fiscal year, HP is planning for the transaction to reduce net income by 17 cents to 19 cents a share in the current quarter.

HP hopes that its painful efforts will produce fruitful results as it plans to challenge IBM’s core services business. HP and EDS had a combined $38.8 billion in services revenue last year, while IBM returned $54.1 billion in total technology and business-services revenue in 2007.

Robertson highlighted one of the biggest challenges for HP is in finding new ways to improve sales at a company that broke through the $100 billion in revenue mark last year, while also keeping Wall Street happy with rising profit margins.

The newly combined company will certainly give IBM a run for its money in the global market, but IBM has considerable brand recognition playing in its favor. Sure, HP is nothing to sneeze at, but will it be strong enough with the addition of EDS to overtake IBM on a global scale? Only time will tell.