Hewlett-Packard Company (HPQ) said that it is planning to reduce its headcount by 9000, a measure taken to reduce costs in its back office computing centers and in order to automate its workflow process by introducing new software.
The retrenchment will result in the reduction of 3.0% of HP’s global workforce, which comes to around 304,000 employees as per the data available in October. The company will give away $1.0 billion from its kitty as severance costs to be paid during the layoff process. During the recent disclosure, the company also stated that H-P will hire 6,000 new workers in sales and service delivery positions, and will shift two-third of its jobs elsewhere in the company.
Hewlett-Packard has a history of making big job cuts. In 2008, the company undertook a restructuring program to integrate the acquisition of Electronic Data Systems. Approximately 7.5% of the combined company’s workforce, or about 24,600 employees, were laid off and in some cases salaries were reduced by 20.0%. By year-end 2008, HPQ eliminated over 2,300 positions in connection with the EDS integration. So the company is in-line with its long term strategy of cost reduction, which in turn is expected to increase its operational efficiency.
This apart, Hewlett-Packard’s second quarter EPS exceeded the Zacks Consensus Estimate and revenues continued the upward trend, showing substantial improvement. The company expects revenue to remain in line in the third quarter, and during fiscal year 2010.
The company is through with the acquisition of networking major 3Com, and will now be able to challenge networking leader Cisco Systems Inc. (CSCO) Although we remain positive on the company’s performance going forward given that demand is improving and the company holds a leadership position in the PC segment, we are not very confident about a substantial improvement in the company’s printing business, due to availability of cheaper substitutes.
We maintain our Neutral rating on the stock.
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