Hewlett-Packard To Cut 9,000 Jobs

Hewlett-Packard Co. plans to lay off approximately 9,000 employees as it attempts to cut costs in its back office computing centers and deepens its use of software to do some of the work that those hubs require, The Associated Press has reported.

The changes to these data centers will be made over approximately three years. The layoffs amount to approximately 3% of the company’s global workforce.

HP will take $1 billion in accounting charges, part of which will be used for severance to the laid-off employees. In addition, it plans to replace two-thirds of the jobs elsewhere in the company by hiring 6,000 people to increase its global sales and delivery staff.

HP has data centers around the world. The company has over 100 centers that it operates for its customers and plans to cut that number approximately in half.

Over the past 10 years, computer services companies like IBM Corp. and HP have been hiring workers in lower-cost areas like India and Eastern Europe to replace higher-paid labor in the US and Western Europe. The company’s next phase of cost-cutting will come from a sharper focus on how technology is used. Much of the work inside data centers can be handled by advanced software instead of human beings.

“It’s about costs and profit,” said analyst Bob Djurdjevic, president of Annex Research, during a conference call with HP.

The company said that it will see savings of approximately $500 million to $700 million yearly from the changes as soon as they are completed. Investors, for the most part, shrugged at the news, sending HP shares down 4 cents to $45.97 in afternoon trading on Tuesday.

Census figures generally indicate that 375,000 people in the US were employed in a category called “data processing, hosting, and related services” in 2007. Their work is not entirely going away, but likely being repositioned, said Tom Smith, an equity analyst with Standard & Poor’s. Actually, some of the technicians that HP is laying off may be the same ones it hires to ramp up its sales force.

Today’s more powerful servers can handle more work. In addition, virtualization software, which lets one server replicate the function of multiple machines, allows companies to get more out of each server that they own.

Additionally, the moves provide the company with the potential benefit of showing its customers how to cut their own information technology costs, said Charles King, principal analyst at Pund-IT Inc.

Cost savings have been a hallmark of CEO Mark HurdMark Hurd’s five-year tenure at HP, the world’s biggest manufacturer of PCs and printers and the top information technology company by revenue. To increase its services business, the company, which is based in Palo Alto, California, bought Electronic Data Systems in 2008 and then cut 24,600 jobs as part of that acquisition.

S&P’s Smith called HP’s latest actions the “next step toward efficiency gains” following the initial integration of EDS.

In addition to pursuing more profit from business services, the company is pushing into the mobile market with its planned acquisition of struggling smartphone manufacturer Palm Inc., which was announced in April.