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HP to Cut 24,000 Jobs in Wake of EDS Merger Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Tuesday, September 16, 2008 4:36:01 PM |
At a meeting with financial analysts yesterday, Hewlett-Packard Chairman and CEO Mark Hurd and members of the company’s executive management team outlined a restructuring plan — including a reduction in headcount of more than 24,000 employees — following its recent $13.9 billion acquisition of IT services provider EDS.
Since the deal was announced in May, concerns have swirled around the planned merger of EDS with HP’s outsourcing business, specifically regarding how quickly the new entity can get up and running and whether the marriage still leaves gaps in HP’s consulting and application integration services.
“We’ll be a bigger, stronger company by the time we get EDS integrated into the portfolio of capabilities that HP has,” Hurd said in opening his prepared remarks.
“We need to get our cost structure in line in order to be more competitive,” said Cathie Lesjak, executive vice president and CFO, adding, “it will take us some time to get EDS growth to a market rate.”
A significant part of the company’s plan to capture value from EDS will come from a reduction in headcount, of approximately 24,600 employees — 7.5% of the combined company’s workforce — over the next three years. The company expects to replace 50% of those positions as it builds out its global footprint, executives said. The headcount reduction will yield approximately $1.8 billion in savings translated to earnings, Lesjak said, while the cost of the restructuring efforts will total $1.7 billion and will be recorded as a charge on the balance sheet in HP’s fiscal 2008 fourth quarter, which ends Oct. 31. Lesjak said the company also will reinvest a portion of the savings in “deal repricing, being more competitive, and adding more reps to the sales force.”
In their presentations, HP executives stressed the company’s ability, bolstered by the addition of EDS, to provide customers with comprehensive computing services, software, and infrastructure, whether owned, outsourced to HP, or managed as a service via cloud computing.
Acknowledging EDS’ shaky financial performance in recent years, Joe Eazor, HP’s senior vice president of transformation, said, “EDS is in a much better position today than it was just a few years ago, with good assets and strong capabilities. But EDS still lags industry leaders when it comes to key performance metrics, so there’s still a great deal of work yet to do.”
Hurd emphasized the complementary relationship of the two companies, highlighting the minimal overlap between their respective top 100 accounts and the opportunity for cross-selling those customers.
Shane Robison, executive vice president and chief strategy and technology officer, gave sparse details of HP’s integration efforts thus far, saying the company maintains an integration planning office in Plano, TX, where EDS is based and where Hurd leads regular meetings. “We will make sure this is on track and delivered faster than any integration of this size has ever been executed,” Robison said, without providing a specific timeline.
The EDS acquisition is expected to yield $0.18 to $0.22 earnings per share (non-GAAP) in fiscal 2009 and $0.38 to $0.42 per share in fiscal 2010, Lesjak said. HP will provide fiscal 2009 guidance for the combined company in November, following the completion of its current fiscal year, she added.
“Services remains a ripe opportunity for growth and margin expansion,” Lesjak said in summarizing her presentation. “We will attain significant value from the EDS transaction, both from cost synergies as well as the better positioning that gives us in our enterprise accounts.”
During a question-and-answer session, Hurd echoed remarks made when the acquisition was announced in May regarding EDS’ Agility Alliance — which includes technology partnerships with Cisco, EMC, Microsoft, Oracle, SAP, Sun, and Xerox. “Most of the partners have reacted pretty favorably, even some of those [considered] direct competitors,” Hurd said. “We will maintain the Agility Alliance.”
Hurd and company stressed during the meeting that in the short term they would remain focused on streamlining the costs associated with the EDS deal as opposed to concentrating solely on winning new business. “For us, it’s more important to grow at a solid growth rate, but to do it with deals we know we can deliver on,” Hurd said. “For us, it starts with getting the cost structure right.”
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