HP to cut 24,600 jobs; takes $1.7 billion EDS charge

By Eric Auchard

SAN FRANCISCO (Reuters) - Hewlett-Packard Co plans to cut 7.5 percent of its work force, or 24,600 jobs, seeking to realize savings from its recent acquisition of Electronic Data Systems Corp, the company said on Monday.

HP said it would carry out the cutbacks over the next three years, while replacing about half the jobs in new areas of its services business. It announced the plan ahead of a meeting with Wall Street analysts to detail the merger plans.

Nearly half of the job reductions will take place in the United States, the Palo Alto, California-based company said.

EDS was headquartered in Plano, Texas, near Dallas.

"We are good at integrating companies ... I believe we will do it well," HP Chairman and Chief Executive Mark Hurd told financial analysts at the company's headquarters.

The $13.2 billion acquisition of EDS, a deal announced in May and closed in August, made HP the world's second largest provider of technology services, up from No. 5 previously.

Arch rival IBM is No. 1 in computer services, and HP's strategy takes aim at this dominance.

The deal bolsters HP's business in the United States and Britain, two strong market for EDS, both among commercial clients and in government agencies.

EDS also gives HP the No. 1 position in "applications management" -- providing maintenance and outsourced management of older software systems.

HP said it would take a charge of $1.7 billion in the fiscal fourth quarter ending in October. Accounting for goodwill will cost $1.4 billion, while cost of the restructuring will involve anther $300 million.

HP estimated $1.8 billion in annual cost savings once the three-year cost-cutting program is completed.

DISRUPTIVE ROLE

HP's shares fell 3.5 percent to close at $45.33 ahead of the analysts' meeting Monday afternoon, amid a broad sell-off.

Following the news, HP shares edged up 11 cents to trade at $45.44 in after-hours trading.

Ann Livermore, executive vice president of HP's Technology Solutions Group, told the meeting the merger with EDS would help the company compete more aggressively for big business customers in a market that will be worth $451 billion by 2010.