HP’s 2008 Electronic Data Systems (EDS) purchase – the one that set off copycat acquisitions at Dell Inc. and Xerox Corp. – has come back to haunt thousands of employees. Of the 25,000 EDS workers that HP didn’t lay off in 2009, another 9,000 will get the axe as HP consolidates and modernizes its data centers so customers get more automated services at lower costs.
HP dropped that bomb in a Securities and Exchange Commission (SEC) filing on Tuesday, and in a subsequent press release. Indeed, the press release buried the job-cuts lead masterfully. Not until the penultimate paragraph did readers discover that layoffs are in the offing, and not until the final sentences did HP reveal it will take a $1 billion charge – through the end of the 2013 fiscal year, according to the SEC filing – for the downsizing.
Shares of HP had fallen 3 percent to $36.55 by 12:10 p.m. Eastern on Tuesday.
Two years ago, HP bought EDS for $13.9 billion. The Palo Alto, Calif.-based company, which made its name as a printer and computer maker, decided it should dive into the lucrative computer-services and consulting business since, thanks to the recession, fewer customers were investing in HP’s core products. HP’s strategy pitted it against the granddaddy in the professional services market, IBM Corp. The HP move further widened the field of competition, sparking two similar transactions among rivals who knew their one-trick pony focus, too, wouldn’t increase revenue. Computer manufacturer Dell bought Perot Systems and copier giant Xerox later snapped up Affiliated Computer Services Inc. for the same reasons HP took on EDS. HP has since changed the EDS name to HP Enterprise Services and now plans to invest $1 billion in the unit to “better position the business for growth,” the company told the SEC.
As such, HP will cut loose 9,000 workers worldwide over an unspecified “multiyear period,” and then replace about 6,000 of those positions with sales and delivery experts. HP expects to see net annual savings of $500 million to $700 million by the end of fiscal 2013, despite the restructuring charge for severance packages, asset impairments and other items.
Even though HP’s stock was down, at least one financial advisor viewed the company’s announcement as positive. “We believed there was more to be done” for HP to catch up to IBM, Louis Miscioscia, an analyst at Collins Stewart Plc in Boston, wrote in a client memo.