Hewlett-Packard To Cut 14,500 Jobs

About 10 Percent Of Full-Time Staff To Go, Saving $1.9B Annually

(CBS/AP)  Personal-computer maker Hewlett-Packard Co. on Tuesday said it will cut 14,500 jobs, about 10 percent of its full-time staff, as part of a restructuring plan designed to save $1.9 billion annually and boost business performance.

The job cuts will occur over the next six quarters, the Palo Alto-based company said.

"The company had to trim down to compete with Dell and others that have a much lower cost structure," says CBSNews.com Technology Analyst Larry Magid. "PCs are a very low margin business."

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Click here to listen to an MP3 of Larry Magid talking to Gartner Group analyst Martin Reynolds about the cuts.

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Most of the job cuts will come in support functions — such as information technology, human resources and finance — and the rest will be made inside business units.

The company said job cuts in sales positions will be minimal, and there will be little change to the headcount in research and development.

Hewlett-Packard said it will offer a voluntary retirement program to longer-serving employees based in the United States.

The company also said that as of January 2006, it will freeze the pension and retiree medical-program benefits of current employees who do not meet defined criteria based on age and years of company service. Instead, HP plans to boost its matching contribution to most employees' 401(k) plans to 6 percent from 4 percent.

The company said these changes won't affect benefits currently received by retirees or eligible employees who are longer-serving and close to retirement age. Existing employees will retain benefits they have already earned.

Beginning in fiscal 2007, HP expects to save about $1.9 billion a year, composed of $1.6 billion in labor costs and $300 million in benefits savings. In fiscal 2006, HP expects savings of between $900 million and $1.05 billion from the restructuring.

The company said about half the savings will be used to "offset market forces" or be reinvested in the business to strengthen HP's competitiveness. The remainder is anticipated to add to operating profit.

"Hewlett Packard remains the industry leader when it comes to printing and its high margin printer supply business but when it comes to personal computers, the money doesn't flow so easily," said Magid

It's been a rocky 2005 for HP.

Earlier this year, the company was hit with a $300 million class-action lawsuit filed by workers who claimed they were improperly denied benefits because they were wrongly classified as contractors and not as employees.