HP to Scrub 24,600 Jobs as It Engulfs EDS

Silicon Valley computing giant HP (NYSE: HPQ) has announced it will cut 24,600 jobs, or about 7.5 percent of its global workforce, over the next three years. Nearly half of those cuts will take place in the U.S.

The move is part of HP's integration of Plano, Texas-based Electronic Data Systems , which HP acquired for US$13.9 billion earlier this year.

The cuts will save the HP about $1.8 billion annually, the company said. However, HP will sustain a restructuring charge of $1.7 billion in the fourth quarter.

HP, which makes everything from desktop and laptop computers to servers and digital cameras, said it intends to add about half of the jobs back over the next three years.

Along with IBM (NYSE: IBM) , HP is also an industry leader in the high-end computer and software consulting and systems integration business.

Job Cuts Make Sense

"On the surface, 24,600 jobs seems like a big number, but when you look at HP's 320,000 global employees, it's about 7.5 percent," Shaw Wu, an equity analyst with American Technology Research, told the E-Commerce Times. "EDS was seen as a poorly run company that was way overstaffed by Wall Street. [The job cuts] arguably could be a lot worse, given the impression of how EDS was doing before this deal."

Wu thinks that HP will retool its workforce to concentrate on other markets, adding jobs where it needs to as business demand grows outside the U.S.

"Frankly, [the U.S.] is not where the growth is," he said. "HP didn't say it specifically, but most of the growth will come from Eastern Europe, Asia, the Middle East and Latin America. I think you can infer that they're looking to add [jobs] in higher-growth regions these days, which makes a lot of sense."

Not Outsourcing

Wu dispelled the notion that HP is outsourcing jobs to overseas markets.

"It just happens that the wages are lower outside of the U.S., at least for now," he said. "I view this as HP recognizing that that's where the opportunities are. Hiring a person over here won't help you address China, Poland or Turkey. If it happens that growth is on the moon, they'll find a way to place staff on the moon."

One of HP's largest competitors, IBM, is also adding jobs overseas, Wu noted.

The Overseas Opportunity

Given the breadth of HP's products and systems integration services, it will have an advantage over other technology companies as it establishes a footprint in overseas markets, said Wu.

"It's about selling the integrated package," he explained. "When you look at Vietnam and Turkey, there's a lot of infrastructure being built out, everything from railroads to telecom, and those things take a lot of technology to make them happen. You're coming in from ground zero. That's what's going on in those areas."