HP Cuts 14,500 Jobs, Freezes Pension

''Approximately half the savings will be used to offset market forces or reinvested in the business to strengthen HP's competitiveness,'' says the ...
Stephen TaubJuly 19, 2005

Hewlett-Packard Co. will eliminate 14,500 jobs, or 10 percent of its full-time staff, and scale back retiree benefits in a reorganization disclosed Tuesday morning.

HP announced that it expects annual savings of $1.9 billion beginning in fiscal 2007 — including $1.6 billion from reduced labor costs and $300 million in benefits savings— following savings of between $900 million and $1.05 billion in fiscal 2006.

About half of the savings will be used to offset market forces or reinvested in the business to strengthen the company’s competitiveness, the company explained, adding that it expects the remainder to flow through to operating profit.

“Approximately half the savings will be used to offset market forces or reinvested in the business to strengthen HP’s competitiveness,” the company explained; “the remainder is anticipated to flow through to operating profit.”

“After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential,” said chief executive officer and president Mark Hurd, in a statement. “We can perform better — for our customers and partners, our employees and our shareholders — and we will.”

HP will take pretax restructuring charges of roughly $1.1 billion over the next six quarters, beginning in the fourth quarter of fiscal 2005. This excludes a previously announced $100 million restructuring charge to be taken in the third quarter.

The company stated that few jobs will be lost in sales; the majority will come in support functions, such as information technology, human resources and finance. The remainder will be made inside business units, in areas where “work can be reduced by improving processes and re-prioritizing existing tasks,” according to a company statement.

Sanford C. Bernstein & Co. analyst Toni Sacconaghi estimated that the jobs cuts alone could boost HP’s expected profit as much as 27 percent this year, according to Bloomberg.

HP stated that its decision to alter its U.S. retirement programs was made “to better match industry benchmarks.” As of January 2006, the company will freeze the pension and retiree medical-program benefits of current employees who do not meet defined criteria based on age and years of company service. Instead, HP will increase its matching contribution to most employees’ 401(k) plans to 6 percent from 4 percent.

“These changes will not affect benefits currently received under such programs by retirees or eligible employees who are longer-serving and close to retirement age,” the company noted, adding that current employees will retain benefits already earned.

The company also announced that it will dissolve its Customer Solutions Group, a stand-alone business unit responsible for sales to enterprise, small and medium-size businesses, and public-sector customers, “to simplify the company and bring its sales force closer to customers.” HP will distribute those responsibilities to its Technology Solutions Group, Imaging and Printing Group, and Personal Systems Group, which will give each unit greater financial and operational control of its business.