September 4, 2001 11:00 AM PDT

HP-Compaq merger means more job cuts

Hewlett-Packard quickly doused any hope Tuesday that its planned acquisition of Compaq Computer would be a bloodless one.

HP said Tuesday that the combined company plans to cut 10 percent of its work force, or about 15,000 jobs, once the deal is completed. That means that when the dust settles, the companies will have eliminated approximately 29,500 jobs since the beginning of this year.

In the news release announcing the $25 billion deal Monday, HP said it hopes to eventually save $2.5 billion a year through cost cuts and other savings. Analysts had expected job cuts to be a big part of those savings.

It has already been a tough year for workers at both companies. Compaq announced in July that it would cut 8,500 jobs this year, 1,500 more than it had previously planned. Later that month, HP said it would trim 6,000 jobs.

HP's job cuts came after the company had already announced several rounds of other cost cuts, including asking workers to take either a 10 percent pay cut or eight additional vacation days by the end of October. That came on top of an earlier request that workers take six days of paid vacation.

Of the 8,500 job cuts announced by Compaq, the company has already made somewhere between 5,500 and 6,000, with the remainder to be made by the end of the year, said Compaq spokesman Arch Currid.

HP and Compaq are not the only PC makers to wield the ax this year. Dell Computer said in May that it would cut 4,000 jobs, and Gateway has announced several rounds of cuts, including a 25 percent reduction of its global staff announced last week.

Apple Computer and IBM thus far have avoided widespread layoffs.

The new 10 percent cut for the staff of the combined HP-Compaq will not come until after the deal is approved sometime next year. The combined company expects to start life with about 150,000 workers but will quickly trim that to roughly 135,000 employees.

Gartner Dataquest analyst Martin Reynolds said he thinks even more cuts will follow.

"Head count is one clear way to cut costs," Reynolds said. "I think they are going to have to continue to cut."

Reynolds said the plan to shave $2.5 billion in costs amounts to only 3 percent of the combined company's revenue.

"It's healthy, but it doesn't feel like enough to justify the merger," he said.

 

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