15,000 Job Cuts Ahead at HP

As expected, Hewlett-Packard CEO Carly Fiorina has announced that the tech giant will cut 15,000 jobs in the near future. About two-thirds of the layoffs will take place by November 1st, with the remainder coming in 2003.

Fiorina made the announcement at the newly merged company’s first analysts’ meeting in Boston, where Fiorina spoke about HP’s future prospects and current employment issues.

HP first raised the specter of layoffs last month, when the company acquired Compaq and its top executives gave a series of speeches about the “new HP” and the challenges it faces in the tech industry.

According to Fiorina, the company has decided to make the cuts sooner rather than later in order to reduce employee uncertainty and organizational trauma.

No Surprise Here

Since job cuts at HP have been rumored for months, the announcement is not a shocker.

As IDC senior analyst Rob Rosenthal told the E-Commerce Times, “HP and Compaq were always very up-front that potential savings were going to come mainly from staff cuts, and the number they discussed was always high.”

But interpretation of the staff reductions could be mixed, Rosenthal noted.

“Financial analysts usually see layoffs as a sign that at least somebody’s doing something, and it’s traditionally rewarded as a cost-saving measure,” he said. “Industry analysts would have to wonder who’s getting cut and why.”

For example, a company that snips its sales force or R&D department may not be very forward-thinking, he suggested.

HP has not yet announced where the ax will fall.

Freezing Weather

Stressing that the company is still keen to retain its management, Fiorina said she and other top personnel will not receive salary increases this year. In addition, discussions about future increases will not occur until the next fiscal year.

The company’s 150,000 employees already are working under a salary freeze brought on by the economic downturn and a tough marketplace.

About 9,000 employees currently are eligible for programs such as early retirement, which encourage them to leave voluntarily.

Necessary Surgery

Fiorina stated that the job cuts will be accompanied by other cost-cutting measures that could produce total savings of US$2.5 billion in the coming year. Many analysts consider the belt-tightening in all corners of the HP realm to be crucial if the company wants to stay competitive in the next fiscal year. Both analysts and the company itself have said they do not expect a rebound in IT spending any time soon.

HP has weathered many difficulties during the past year, including a six-month battle with former director Walter Hewlett, who opposed the Compaq merger and dragged HP through a costly legal battle.

The company’s stock dropped last September when the deal was announced — and then kept sinking. HP found itself scrambling to integrate two mammoth companies while facing unhappy investors.

Fiorina insisted that the job cuts will be part of a larger effort to integrate the companies and boost confidence in HP’s future.

“It’s never easy to merge two companies,” Rosenthal said. “Often, the planned synergies don’t work out. But the question is, would it have been more harmful not to merge? It may have been that what it’s costing in restructuring for HP and Compaq would have been what the two companies might have lost in operational costs separately.”