HP printing out 14,500 pink slips

Sales and support workers are hardest hit under restructuring plan intended to save $1.9 billion annually.

Facing increased pressure to break out of its No. 2 position, Hewlett-Packard has been forced to reinvent itself once again.

As part of its strategy, the computer and printer maker said Tuesday that it will lay off 14,500 workers, or about 10 percent of its staff, under a restructuring plan designed to bring the company's costs in line with those of competitors like Dell and IBM.

HP said the broad changes will save it about $1.9 billion each year starting in the summer of 2006. In its current fiscal year, the company expects to save between $900 million and $1.05 billion.


What's new:
HP announces a massive restructuring including layoffs of 14,500 employees.

Bottom line:
The layoffs are designed to save HP more than $1.9 billion each year in operating costs. HP has laid off about more than 3,000 employees so far this year. In April, 1,900 employees took advantage of a voluntary severance plan in the imaging and printing division.

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Although the job cuts announced Tuesday will be felt throughout the company, the majority of staff reductions will come from sales and from support functions, such as IT, human resources and finance, Palo Alto, Calif.-based HP said.

"Our goal is to create a simpler and nimbler HP," Chief Executive Mark Hurd said during a conference call Tuesday, noting that the changes will be staggered over the next 18 months.

The restructuring is the most significant move Hurd has made since he replaced Carly Fiorina less than four months ago.

Employees are not expected to be immediately notified of their status but may get a greater sense of their place at the printer and computer maker sometime later in the week--after HP executives convene for more high-level discussions. Executives met over the weekend to nail down the number of layoffs and to decide which departments would be most affected, according to a source close to the company.

The announcement was telegraphed so far in advance that some employees had begun referring to the restructuring and layoffs as "The Big One."

HP currently has 150,000 employees, the same as it did 18 months after completing its acquisition of Compaq Computer.

As previously expected by some analysts, HP is also putting a freeze on its pension and retiree medical-program benefits for employees who do not meet defined criteria based on age and years of company service, starting in January 2006. Instead, the company said it will boost its matching contribution to most employees' 401k plans to 6 percent from 4 percent.

Mark Hurd

The $1.9 billion in expected annual savings is split between $1.6 billion in labor costs and $300 million in benefits expenses.

HP said it expects to spend about $1.1 billion over the next year and a half on the restructuring, excluding a $100 million restructuring charge announced earlier this year.

The company said it will also dissolve its Customer Solutions Group, a standalone division that had been responsible for sales to corporations, small and medium-size businesses and public-sector customers. Instead, HP said it will merge its sales teams into the company's three main business units. Senior sales positions will be added to each business segment.

At the same time, Michael Winkler, 60, will retire from his position as executive vice president of the group, the company said. Winkler had been trying to retire for some time, after nearly 10 years at HP and Compaq and more than 35 years in the industry, a representative with HP said.

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