Hewlett-Packard hopes to save $1.9 billion a year through a massive reorganization in which it will cut 14,500 jobs, or around ten per cent of its workforce.
It will also link sales and marketing efforts more closely to business units, eliminating the Customer Solutions Group which sold to enterprise customers, it said Tuesday.
Few positions will be cut in sales or research and development. Instead, HP will eliminate management layers and restructure support functions, for a saving of $1.6 billion a year in staff costs. It will also cut US retirement benefit programs, saving a further $300 million a year, it said.
The company won't benefit fully from the savings until 2007, but in its 2006 fiscal year it expects to save between $900 million and $1.05 billion, it said. About half of those savings will be turned into operating profit, the company said. In the year to April 30, HP had revenue of $83.3 billion.
HP's financial performance has been uneven in recent quarters. The company appears to have stemmed the losses in its PC and server groups, but those divisions are not as profitable as management and shareholders would like. HP has its printer business to thank for most of its recent profits, but the company trimmed positions from that group earlier this year in order to further reduce costs.
Its business is increasingly reliant on low-margin products, including PCs and low-end servers. To compete with a lean company like Dell HP will have to look into trimming positions in those divisions, said Charles King, principal analyst with Pund-IT Research in a recent interview.
HP plans to report its third-quarter earnings in August.