Hewlett-Packard is releasing details of its plans to integrate EDS into growth strategy, including a restructuring plan for the EDS business group that will reduce the workforce by almost 25,000 employees - half of which are in the U.S. - over the next three years. From HP's release:
The restructuring program will take place over three years and includes a workforce reduction that will streamline the combined company’s services businesses. Workforce reduction plans will vary by country, based on local legal requirements and consultation with works councils and employee representatives, as appropriate. Approximately 7.5 percent of the combined company’s workforce, or about 24,600 employees, will be affected over the course of the program, with nearly half of the reductions occurring in the United States. HP will provide employees affected by this restructuring program with severance packages, counseling and job placement services. HP expects to replace roughly half of these positions over the next three years to create a global workforce that has the right blend of services delivery capabilities to address the diversity of its markets and customers worldwide.
The company said it expects the restructuring will result in a cost savings of about $1.8 billion, net of reinvestment in other areas. The company will be recording a charge of $1.7 billion in Q4 2008 - $1.4 billion of which will be recorded as goodwill and $0.3 billion of which will be recorded as a restructuring charge that will be included in HP’s GAAP financial results.
In the analyst's meeting this afternoon, the company is expected to discuss its broad offerings that CIOs might consider as they rethink their technology infrastructures and consider outsourcing or moving into services through the cloud.
Also see: HP vs. IBM: The looming IT services war.
updated: HP updated analysts in a meeting with its strategy on integrating EDS into the company's portfolio and culture. The company said it has been identifying the demands of the new marketplace and looking at ratio between what IT spends on maintenance and support vs what those departments spend on innovation.
One of the things HP says it wants to offer with its portfolio of offerings - across the board in hardware, software and now services - is flexibility in meeting the customer's demand. CIOs today are dealing with four big issues: 1) needing to flip that spending ratio to less on maintenance and more on innovation, 2) modernizing data centers to deal with increasing business demands, 3) take advantage of what virtualization has to offer and 4) turn the digital explosion into an advantage by using tools to better manage the data. And there are choices on how to do it: buy it from HP or let HP do it for you, executives said.
HP points back to the acquisition of Compaq as a platform for being strategically capable to integrate EDS and offer customers a better value. The two companies needed each other to elevate in areas where they weren't big players, they said. They see little overlap in their offerings but similar goals and and cultures that will allow the two sides to morph and become a bigger player, second to IBM.
The two plan to leverage each others strengths - EDS has a strong customer base already and contracts that HP will inherit, creating an existing lineup of customers that could become potential customers of HP's hardware and software products, along with services. HP, on the other hand, brings things like resources and strong R&D arm that will help the EDS side of the business to expand technologically.
The meeting continues with details about the financial impact of EDS integration.
updated: In the second half of the analysts's meeting, the company laid out details about finances impacted by the EDS integration.
In terms of workforce reductions, the company noted that there will be a reinvestment in the workforce that will take place to offset some of the reductions, half of which will be spread out over 2009. For example, as the companies streamline areas like IT, there will be a boost in sales personnel. The company expects that half of the headcount lost through the reduction will be replaced.
In terms of reporting financial results, HP said EDS finances will be wrapped into the HP services line item and not reported separately. The company did not adjust its eps guidance for the fourth quarter and said it will offer guidance for fiscal year 2009 during its Q4 call.
Finally, the company addressed rumors of the impact on retirement plans, stating that EDS will be converted to a more-generous HP plan but that the conversion is not expected to have a significant impact.