Hewlett-Packard (HPQ) announced Tuesday that it would put $1 billion into its enterprise services division -- and lay off 9,000 workers in the process. In the last quarter for which it has reported results, which ended on Jan. 31, HP had revenue of $21 billion and net income of $2.3 billion. The enterprise unit provides consulting, outsourcing and technology services.
HP's 10-Q shows that the revenue from the division was $8.7 billion, down slightly from the same period a year ago. Operating income was $1.3 billion. So, the business is critical to HP's success, but it isn't doing terribly well.
The enterprise operation is part of HP's plan to diversify beyond hardware and become more competitive with rival IBM (IBM). HP bought information-technology consulting firm EDS in May 2008 for $13.1 billion. In March 2009, HP said it would eliminate 24,600 jobs during the integration of EDS -- but it's not entirely clear whether the new layoffs are a subset of those or in addition to them.
Describing the new initiative, HP said it "will invest in fully automated, standardized, state-of-the-art commercial data centers built on its Converged Infrastructure and operated by its industry-leading management software. Leveraging its experience from its own IT transformation, HP will enable clients to migrate their applications to these modernized infrastructure platforms, allowing them to run their businesses faster and more efficiently."
That description is vague enough so that many observers outside the company may not fully understand HP's plans.
HP will take a charge of approximately $1 billion over several years that will be included in its GAAP financial results. Once completed, this transformation is expected to generate annualized gross savings of approximately $1 billion and net savings after reinvestment in a range between $500 million and $700 million, the company said.
A Net Loss of 3,000 Jobs
On the plus side, two-thirds of those layoffs are expected to be offset by growth elsewhere in the company: According to HP's 8-K form, filed with the SEC Tuesday: "During that same period, HP also plans to replace approximately 6,000 of those positions to increase its global sales and delivery resources."
Still, that will be cold comfort for those losing their jobs. The era of big layoffs was supposed to be over now that the economy has begun to recover. HP apparently didn't get the memo.
Basics Of The Stock Market
Stock Market 101 - everything you need to know but were afraid to ask!View Course »