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HP Layoffs Not Seen To Effect Consumer Biz

7/22/2005 10:47:00 AM Eastern

Palo Alto, Calif. — Industry analysts are calling Hewlett-Packard’s massive restructuring a positive move, although little if any impact is expected to be felt in the consumer/retail communities.

Hewlett-Packard’s newly minted CEO Mark Hurd last week announced a long-expected company reorganization that has HP cutting 14,500 workers and merging its customer solution group with its three remaining groups.

The reductions will be primarily centered on support, human resources and information technology personnel, with sales and research and development resources losing only a minimal number of people, the company said in a written statement. HP will also offer long-serving employees an early-retirement option. The cuts will take place over the next six quarters. The company expects to take a $1.1 billion restructuring hit during this period, not counting an additional $100 million to be charged during the third quarter of 2005 from a separate action. By 2007 HP anticipates saving about $1.9 billion per year due to these maneuvers.

Amber Shore, single function printer analyst for Current Analysis, La Jolla, Calif., does not expect the restructuring to have any impact on the consumer side of the business and she was upbeat on the news that about half of the money saved would go back into the company’s research and development department.

“HP needs to keep improving its speed and color capabilities to regain some of its lost share,” she said.

The research firm Gartner, San Jose, Calif., called Hurd’s move part of a positive trend for HP and part of an overall organizational shift the Gartner’s analysts predicted after his appointment.

“It makes HP's organizational structure more democratic and logical. With more executive vice presidents reporting directly to the CEO, business units and other functions have more autonomy to execute their own strategies, but with closer accountability.

HP executives gave no indication that any further changes to HP’s business plan were forthcoming stating that the current strategy makes sense.

“I focused my efforts on executing the current HP,” Hurd said, adding that a great deal of the leg work involved in today’s cuts had been started prior to his arrival at the company in April from NCR.

Not details were given on the impact the restructuring would have with HP’s retail relationships or if there would be any future impact on consumer product lines.

A geographic breakdown of the layoffs was not given by the company, although Hurd pointed out that since most are coming in the corporate support segments, which are U.S. based, the company’s domestic staff will endure a large portion of the cuts.

In addition to the layoffs, Hurd said the customer service group, which was responsible for sales to enterprise and small- and medium-size businesses, will merge its sales operations into the technology, imaging and printing and personal systems groups. HP believes this will bring the company a step closer to its customers and give each business unit greater control over its businesses.

The demise of the Customer Service Group signals the end of Mike Winkler’s time at HP. Winkler, formerly CEO of Compaq and a force behind that blockbuster merger, had headed the group as executive VP since HP acquired Compaq two years ago. HP’s announcement said he plans to retire.

The company also announced a modification of its U.S. retirement package. Staring next January pension benefits will be cut for current employees who do not meet defined criteria based on age and years of service. These will be those now close to retirement. As a partial counter HP will increase its matching 401(k) contribution, from 2 percent to 6 percent. Previously retired HP employees will continue to receive these benefits.

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