HP cuts 25,000 jobs but gains BPO advantage

Buying up systems integrator Electronic Data Systems enables Hewlett-Packard to close its IT offering gaps and move up to a close second to IBM, according to technology industry analysts.

Although the move will result in a massive lay off more than 24,600 employees from both companies, the acquisition provides HP with a critical toehold on the large scale business process outsourcing(BPO) and application services and management markets where EDS currently excels.

On Monday, HP unveiled its streamlining plans following the $14.92 billion purchase of EDS. While nearly 7.5 per cent of the new partners’ workforce will be cut over the next three years, HP said nearly half that number will eventually be replaced.

“It’s not as gloomy as it seems,” said Sebastian Ruest, vice-president of services research for Toronto-based analyst firm IDC Canada.

“This put HP in the ranks, if not a close second to IBM in the world of end-to-end solutions for businesses.”

Other leaders in the field include Canadian global BPO firm CGI Group Inc., Accenture, Fujitsu, French IT consulting and management firm Capgemini, and Computer Science Corp (CSC) of Virginia.

HP shines in the filed of personal computing and imaging hardware, storage and server products and channel distribution. Applications management and outsourcing services, Ruest said, is a logical next step for the Palo Alto, Calif-based company.

“HP dabbled in outsourcing in the recent past, but the company needs a more substantial infrastructure layer,” he said.

“With the purchase, HP gains BPO and apps management capability to provide customers with SAP, Oracle and Microsoft tools support.”

EDS brings substantial assets to the HP group.

With an international workforce of 140,000 employees, the Plano, Texas firm founded by former presidential candidate Ross Perot, manages more than three million desktops and 300,000 servers for clients around the world.

In 2007, the company raked in no less than $23.72 billion in revenue world wide. More than $6.44 billion of that figure was attributed to the application services side of the business while the BPO market accounted for in excess of $3.33 billion, Ruest said.

In a statement issued Monday, HP CEO and Chairman Mark Hurd said: “I assure you, we will nail down this integration.”

He expects EDS to add about $3.76 billion in revenue to HP in the fourth quarter of 2008 ending in October. Another $22.64 billion to $22.86 billion in revenues will be added by 2009 and up to $22.64 in the following year.

Hurd did not give any specifics regarding the mass layoff but only indicated that approximately 50 per cent of the job cuts will occur in the U.S.

Mehboob Jaffer, director of corporate public relations for HP Canada, said the restructuring will involve areas with substantial duplication of functions.

The job cuts are expected to save HP about $1.93 billion each year for the next three years and HP will take a $1.82 billion charge in the fourth quarter of 2008 related to the restructuring program, Jaffer said.

Further details about the areas to be affected are expected within the next few months.

The finance, legal, marketing, human resources and real estate departments of both companies are most likely to be the targets of the cuts, Ruest of IDC said.

The acquisition, he added, is well in line with the programs initiated by Hurd ever since he took over HP’s reins.

“Hurd has gained the trademark of Master of Consolidation.”

Of the 30 acquisitions made by HP acquisitions in the last three to five years, more than half could be attributed to Hurd who became CEO in 2005, Ruest said.

Massive layoffs and acquisitions have been more of a rule than an exception for the company in recent years.

In 2005, Hurd presided over restructuring that eliminated more than 15,000 jobs. About the same number of positions were put on the block in 2002 when then HP CEO Carly Fiorina pushed through with a highly contested merger with Compaq Computer.

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