HP to cut 9,000 jobs, automate enterprise service business

It will take a $1B accounting charge to cover the cost of restructuring

Hewlett-Packard has announced plans to cut 9,000 jobs as it restructures its enterprise services business and automates the services it offers enterprise customers.

The company has spent the last 20 months integrating EDS, the consultancy and services business it acquired in 2008.

As part of the restructuring, HP will consolidate the data centers and management platforms it uses to deliver enterprise services, taking the opportunity to automate many aspects of its work. That automation and consolidation will allow it to eliminate around 9,000 jobs, it said Tuesday.

The job cuts will come over a number of years, and will force HP to take a charge of around US$1 billion against revenue over the same period. HP expects the changes to result in savings of between $500 million and $700 million after reinvestment.

The first wave of the EDS integration focused on rationalizing legal entities and eliminating redundancies, Cathie Lesjack, executive vice president and chief financial officer, said during a conference call Tuesday. As HP learned more about the business, it has discovered new ways to gain efficiencies, Lesjack said.

After closing on the EDS deal, HP announced plans to lay off about 24,600 workers over three years. HP said at the time it would replace about half of those positions. The cuts announced Tuesday are not part of those reductions, according to a spokeswoman.

Meanwhile, HP believes that over the next five to 10 years, the services industry will be defined by automation, which helps from both a cost and quality perspective, executives said.

"The real value to the client comes through automation," said Ann Livermore, executive vice president of HP's Enterprise Business division.

The expected savings will help HP expand its push into areas like private cloud infrastructure services and desktop-as-a-service, according to a statement.

The planned job cuts aren't as severe as they may look, according to Livermore.

Livermore noted that they will occur over multiple years, and that average attrition rates for services businesses is "usually in the high single digits." HP also plans to hire 6,000 workers as part of the new services initiative.

HP's move is a natural one given the market forces in play, according to one industry observer.

"This is part of a larger transition at work, with larger vendors establishing cloud-like automated data centers to serve as targets for application off-loading," said Redmonk analyst Stephen O'Grady.

HP made a big step in that direction in 2007, when it purchased data center automation vendor Opsware for $1.6 billion. The company feels good about its management software portfolio, but plans to make further acquisitions, particularly of the "tuck-in" variety, Livermore said.

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