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HP reveals 9,000 enterprise service layoffs

Tucked inside of an SEC 8-K announcement that Hewlett-Packard will invest $1 billion in enterprise services lay a bitter nougat: 9,000 employee positions will be losing their jobs over the next three years. The cuts are coming from the same services business that HP says it's expanding. It's not clear if these jobs are part of the 24,600 layoffs HP announced last spring.

But it's a certainty that HP took on more than 140,000 consultants and engineers in 2008 when it acquired EDS, swelling the Hewlett-Packard headcount to more than 300,000 employees. The new business unit has supplied the biggest share of HP's 2009-10 profits. Enterprise computing expansion has been a series of acquisitions for years at HP, from software purchases like Mercury Interactive to the EDS deal. HP's services business overtook HP Printer and Imaging's sales and profit leadership once EDS's 140,000 employees were folded into the company.

HP reported that over the next three years it will "replace approximately 6,000 of the 9,000 positions" it will cut. The headcount move gives the vendor flexibility to curtail compensation while it swaps out personnel based on performance and relationship factors. In an HP which has boasted of cost-cutting ever since CEO Mark Hurd took over, layoffs have been a steady fact of life. Hurd and other executive officers mentioned no layoffs in the quarterly conference call with analysts two weeks ago. Two kinds of operations have come under the HP scalpel: those with high headcounts and those not pulling in expected profits.

The company operates units more profitable (Software) as well as larger in sales (Personal Systems) than Services, but none with a higher number of employees. HP said the layoffs will net "annualized net savings, after reinvestments in sales resources and other initiatives, of approximately $500 million to $700 million by the end of HP’s 2013 fiscal year."

Some of those reinvestments come in the form of getting HP customers to adopt "modernized infrastructure platforms" for applications. Mention platforms in the 3000 community and the customers will think of servers and operating environments. But these changes are most likely to impact the customer who is considering the use of HP's datacenters for cloud computing. HP has been following an industry trend to promote cloud services as a migration plan.

HP said in today's 10-K report that the reinvestments come in the form of

  • Fully automated, standardized, state-of-the-art commercial data centers
  • Investment to facilitate the migration of client applications to modernized infrastructure platforms, and
  • Consolidating the enterprise services business’s commercial data centers, management platforms, networks, tools and applications.

The changes in headcount will cost HP a $1 billion charge to its earnings over the next three-plus fiscal years -- which amounts to about one month of profits for the $114 billion company. The replacement staff of 6,000 will arrive in a vague bundle of positions.

6,000 of these positions will increase global sales and delivery resources. The changes to HP’s workforce will be made over time and will vary by country, based on local legal requirements and consultations with employee works councils and other employee representatives, as appropriate.

The last language in that statement shows that HP will be laying off enterprise services employees worldwide, since the US operations involve no works councils. The layoffs will affect HP employees in services delivery services, the technical knowledge arm of its EDS business. HP has maintained the EDS brand since the acquisition.

Hewlett-Packard spent $1.2 billion acquiring Palm and the WebOS in April, a deal that will close sometime next month. While these transactions appeal to unrelated customer sectors, it would be easy to say that the approximately $600 billion in HP savings from layoffs will pay for about half of acquiring Palm. Employees who are dismissed are likely to look at it that way. HP will be eating its own dog food, as the use-your-own-solution saying goes, to make bigger and better datacenters replace headcount in Services.