Hewlett-Packard Cuts 25,000 Jobs After E.D.S. Purchase

By ASHLEE VANCE

Published: September 15, 2008

MILLBRAE, Calif. — The computer and printer maker Hewlett-Packard announced on Monday that it would eliminate 24,600 jobs, or 7.5 percent of its work force, as part of its plan for digesting the computer services giant Electronic Data Systems, which it acquired for $13.9 billion in August.

“I think most of you that follow us know I am a big believer that having the most efficient cost structure directly relates to your ability to scale and grow,” Mark V. Hurd, Hewlett-Packard’s chief executive, told securities analysts gathered at a hotel here, near San Francisco’s airport.

Almost half of the job cuts will occur in the United States. The company, based in Palo Alto, Calif., said it expected the reorganization to result in annual cost reductions of nearly $1.8 billion. It said it would record a $1.7 billion charge in the fourth quarter tied to the layoffs.

The layoffs are the start of a three-year plan in which Hewlett-Packard will try to unify its existing services business with its new acquisition. Up to half of the eliminated positions may be refilled over the course of the reorganization, it said.

The purchase gives H.P. added muscle to go up against the technology services leader,I.B.M. Some analysts have said, however, that Electronic Data Systems’ costs are still too high to compete with service firms in India and that the combined company’s breadth trails I.B.M., which has a large consulting arm.

Joe Eazor, the former head of corporate strategy at E.D.S and now a senior vice president at Hewlett-Packard, acknowledged that his former employer lagged industry leaders on crucial performance measures.

“There is still much work that we need to do,” he said.

Wall Street analysts had expressed optimism that H.P. could trim postmerger expenses significantly by eliminating overlap between the two companies in human resources, finance and other basic functions.

The layoff figure came in “enormously higher” than expectations, said A. M. Sacconaghi, a securities analyst with Sanford C. Bernstein & Company who had forecast $500 million in savings.

Still, the acquisition is about more than just slicing expenses. Hewlett-Packard faces several revenue challenges with the integration.

E.D.S. was technology neutral, buying from several vendors, including Sun Microsystems,Xerox, Cisco Systems, Microsoft and SAP. Many of the companies’ shared customers can now ask H.P. to renegotiate contracts as a result of the acquisition. In addition, H.P. is expected to push its own hardware, which may upset delicate relationships with E.D.S. partners like Sun.

“It will have to do this dance and have some give and take in these relationships,” Mr. Sacconaghi said.

Sun’s chief executive, Jonathan Schwartz, voiced concerns over the strategy. In an e-mail message on Sunday, Mr. Schwartz said, “Customers have sensed H.P. driving an H.P. hardware sales agenda over a customer agenda, and that’s not a recipe for success in outsourcing.”

The Electronic Data Systems purchase is part of a program at Hewlett-Packard to round out its major product lines in the hopes of matching I.B.M. Under its previous chief executive, Carleton S. Fiorina, H.P. acquired the hardware giant Compaq Computer. In subsequent years, it purchased several software makers, including Mercury Interactive, Opsware and Peregrine Systems.