July 20, 2005 6:15 PM PDT

HP fattened up before latest trim

The head of Hewlett-Packard surveys the giant company, figures 150,000 workers is too many, and chooses to cut thousands of jobs.

Is it Mark Hurd with his reorganization plan announced this week? Yes, but the same statement applied to former HP chief Carly Fiorina three years ago, as the company merged with Compaq Computer.

A striking fact about HP's latest staff-slashing news is that the company has returned to its mid-2002 size, despite reported job cuts in the past few years totaling more than 22,000. What's behind the recent bulge? HP spokesman Ryan Donovan declined to comment, saying the company is focused "on the future."

But analysts suggest both bureaucratic bloat and a growing presence offshore are factors. Also important is HP's determination in recent years to stick with its plan to be a soup-to-nuts technology vendor, said Bill McNee, president of consulting firm Saugatuck Technology. HP's products range from digital cameras and personal printers to technology services and high-end server computers. Its competitors range from Sony to Dell to IBM. "It was an attempt to maintain its presence as a full-line provider in all markets," McNee said.

Hurd, who took over this year as chief executive of the Palo Alto, Calif.-based computer maker, said Tuesday the company would trim its work force by 14,500 jobs under a new restructuring plan.

HP said the broad changes will save it about $1.9 billion each year starting in the summer of 2006. Although the job cuts announced Tuesday will be felt throughout the company, the majority of staff reductions will come from sales and from support functions, such as IT, human resources and finance, HP said.

HP has been through this sort of thing before. The Compaq merger created a company of 150,000, and HP said it would trim 15,000 jobs in the wake of the combination. It later upped that number to a planned 17,900.

Even after the merger-related cuts, more were in store after the company posted uneven financial results last year. Some 1,900 employees took advantage of a voluntary severance plan in the imaging and printing division. All told, HP has laid off about 4,500 employees so far this year, said Toni Sacconaghi, analyst with Sanford C. Bernstein & Co.

If HP cut nearly 18,000 jobs a few years ago and has chopped several thousand more positions since then, how could its head count total 150,000 today? One likely answer is in the company's services unit, estimated by Sacconaghi to comprise 65,000 people.

HP recently entered the field of so-called business process outsourcing--taking on tasks such as finance and accounting for companies--and has said its hub for BPO is in Bangalore, India. Eugene Kublanov, vice president at consulting firm NeoIT, estimates that HP has about 3,000 employees in its Bangalore center. "I would imagine it has grown fairly rapidly over the past couple of years," said Kublanov, whose firm advises clients on offshore outsourcing deals.

An HP facility focused on back-office operations in the Philippines also is expanding, Kublanov said. He said it has added about 50 people in the past six months, to a total of about 550.

HP isn't alone among tech services companies in increasing its operations in lower-wage countries. IBM and Accenture are taking similar steps.

Shifting work offshore is controversial, largely because U.S. tech workers often lose jobs in the process. Defenders say the practice improves the U.S. economy overall.

McNee figures another reason for HP's recent staff expansion is a not-very-defensible one: the way large companies can add employees unnecessarily. "That's what happens," he said. "These things float along, and head count increases because of bloat, in particular in the back office."

Hurd's work force move is largely about trimming the fat that's developed, McNee said. But he thinks HP's new leader will have to take more strategic action soon to clarify the company's long-term plan. To McNee, HP's lack of focus puts it on a dangerous course--and could lead to the need for yet another big restructuring.

"Hurd needs a 'vision thing' within six months, as HP can't continue to drift," he said.

 

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