Emperor Hurd decimates HP

Support and benefits to suffer

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HP today bowed to the will of Wall Street and revealed plans to decimate its workforce by 14,500 people - a figure no doubt thought more palatable than 15,000.

Employees around the globe will be affected by the move with most of the cuts hitting support staffers. Those working in HP's sales and research and development departments should retain their jobs. In addition to the layoffs, HP will rework its retirement structure here in the US to freeze benefits for some.

"After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential," said Mark Hurd, the CEO at HP. "We can perform better - for our customers and partners, our employees and our shareholders - and we will."

These much anticipated firings stand as Hurd's first major shift at HP. The changes, however, aren't really that fresh. They mimic a strategy employed by Hurd at NCR where he also trimmed support staff, altered retirement packages and cut jobs.

HP will need six quarters to cull all 14,500 employees - 10 per cent of its current workforce. It expects to save $1.9bn annually as a result, starting in 2007. That figure includes $1.6bn in labor costs and $300m in benefits savings. In fiscal 2006, HP looks to save anywhere between $900m and $1.05bn.

Analysts have long put pressure on HP to squeeze more profits out of its PC and corporate hardware businesses. Having the ultra-efficient Dell as a cost rival and IBM as services competitor has proved difficult for the new HP. Today's actions are a clear response to such pressure.

During a conference call with analysts, Hurd declined to offer specifics on what regions would witness the most cuts. HP, however, did say that HR, finance and IT support operations would thin significantly.

"Keep in mind that we have many details to work through and additional details will be provided in the coming months as is appropriate," Hurd said.

In the US, HP will begin offering voluntary early retirement packages to qualified staff. Starting next year, it will also curtail pension and retiree medical-program benefits for workers who do not meet more restrictive age and years of service requirements. On the plus side, HP will up its 401k plan matching from 4 per cent to 6 per cent.

Despite constant pounding from analysts to provide more details about the moves, Hurd would not budge. Instead, he delivered a few trite phrases to reassure Wall Street.

"We think we have done a lot of work here," he said. "I think we know what we are doing."

At no point did Hurd address the human cost of these decisions. His predecessor Carly Fiorina learned well how hard motivating a beaten down army can be. Many workers must question the motives and intelligence of the job cuts. Does Hurd know HP well enough to make such reductions? Will he please investors at the expense of customers?

"There was a lot of work done prior to my coming," he said. "All we did was try and galvanize it upon my arrival." ®

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