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 Channel Futures

Business Models


HP Layoffs to Hit Former EDS IT Service Business Hardest

  • Written by Jessica Davis 1
  • May 24, 2012
Tech giant HP (NYSE:HPQ) yesterday confirmed the rumors that had been swirling for the last week -- the company will lay off 27,000 employees, an 8 percent workforce reduction.

Tech giant HP (NYSE:HPQ) yesterday confirmed the rumors that had been swirling for the last week — the company will lay off 27,000 employees, an 8 percent workforce reduction. CEO Meg Whitman characterized the HP layoffs as a business process re-engineering, and HP executives said that the company will be investing more in research and development (R&D) and will likely also shift some of the savings to the company’s bottom line.

CFO Cathie Lesjak told Bloomberg that the enterprise services division, the former EDS that HP acquired for $13.2 billion in 2008, would take the biggest hit when it came to job cuts, although she did not quantify the cuts there. However, Bloomberg reported that sources “familiar with the matter said the company plans to reduce its services workforce by 10,000 to 15,000 people.”

Services revenues for the second quarter fell by 1 percent year over year. Sales of printers and ink fell by 10 percent, and sales of servers, storage devices and networking equipment fell by 6 percent.  PC sales remained about the same.

So while services revenues fell by just 1 percent for the quarter, HP plans to make most of the job cuts in that division of the company. And much of the cost savings will go to reinvestment in HP’s R&D and other areas.

Tech Giants Jump into Services

When HP acquired EDS, it was widely viewed as a play to get into the more profitable services business as the hardware business continued to become commoditized.  Indeed, the move mirrored that of tech giant IBM (NYSE:IBM) which ended up selling its PC division and putting a greater focus on services. And other companies have since followed HP’s lead with Dell (NASDAQ:DELL) acquiring Perot Systems and Xerox (NYSE:XRX) acquiring ACS. (Dell also announced quarterly earnings this week, and they were disappointing. Lenovo’s announced quarterly earnings painted a brighter picture for PC sales.) What did all these deals have in common? Tech giants with a legacy in hardware looking to get into the higher-margin services business.

Is HP giving up on that, or is it moving more of that opportunity out to the channel and MSPs?  How HP’s go-to-market strategy will change following the job cuts remains to be seen.

In a conference call with analysts, HP executives were careful to cast the planned re-engineering in a positive light. Meg Whitman told analysts:

“Our restructuring is really about three things — we’ve got to better align HP’s cost structure with our revenue portfolio, we’ve got to position the company to take advantage of some of the biggest shifts that I’ve seen in technology in my 30-year career in business, and then we’ve got to streamline our operating model.”

Changes to Go-To-Market Strategy

Whitman also talked about changes to the company’s go-to-market strategy and about combining the sales operations from the enterprise and consumer businesses. That’s a move that could mean more opportunity for the reseller channel as HP looks to gain efficiencies through sales force job reductions.

We’ll be keeping a close eye on HP to see how these job cuts materialize and what it will mean for HP partners and MSP opportunities.  Stay tuned.

Tags: Agents Cloud Service Providers MSPs VARs/SIs Business Models

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8 comments

  1. Avatar The Cloud Man June 1, 2012 @ 4:02 am
    Reply

    Meg and company are RFI’ing the people that know how to make the cloud work for HP.

    I have moved $117M to an HP competitor in less than a month after getting RIF’d from this POS.

    Aunt Meg is high on bath salts.
    Short this pig to oblivion!

  2. Avatar Shawn Dvorak June 4, 2012 @ 8:45 pm
    Reply

    I’d love to talk with any Software Engineers being let go by HP with 4+ years experience in object oriented C/C++ .

  3. Avatar Mike January 1, 2013 @ 11:05 pm
    Reply

    EDS, an IT services company used to understand that the business was built on customer satisfaction resulting from on time and on budget delivery of work that benefited the customer. It changed while I worked there (1985 – 2007) into a lets take the money and run company. Just make sure that the contract is wooly enough with enough weasle words to prevent a lawsuit. Employees were valued, that changed to giving raises to valued employees as infrequently as is possible, trying to leverage even valued employees into quitting rather than paying redundancy when they were on the bench, getting rid of older employees as they cost more, and frankly lying to both customers and staff. Management would do anything to protect their own jobs. Despite management bluster, they had absolutely no guts and would fight to the last drop of your blood. A simply awful company and Whitman is probably just the leader to perpetuate this antiquated, second rate empire.

  4. Avatar Roger - UK January 6, 2013 @ 5:49 pm
    Reply

    I also worked for EDS in the UK as an account manager. Mike is correct. I had personal experience of people being forced to quit, of bonuses and raises being promised but never delivered, of performance appraisals which were downgraded by my leader so as not to create an expectation of promotion or more money. I left to join IBM which is slightly better, but my belief is that EDS has steadily declined under a series of useless executives and as the more experienced people were either let go or retired. I dont agree with the wholesale overseas (to India) outsourcing. I was in banking and the work we had done overseas was very poor. We actually had a maintenance team that just supported this code, which was something we never did before. I am glad this is behind me, and I didnt find having EDS on my C V to be of any help in my job search.

  5. Avatar Joe Panettieri January 11, 2013 @ 7:11 pm
    Reply

    Hey folks: I think HP's latest earnings come out Feb. 21, 2013. We will be covering the results on The VAR Guy (http://www.thevarguy.com). We'll offer some updated insights on HP at that time (if not sooner).
    -jp

  6. Avatar Anonymous April 30, 2013 @ 7:38 pm
    Reply

    As a retired HP EDSer, I am
    As a retired HP EDSer, I am waiting for the company to announce it has found a way to steal back the pensions. When I left, I had an argument with the HR department over the pension calculation, I was cheated. I noticed that the cafeteria was declining but going up in price, the benefits were going away, in addition to decreases in salary, no bonuses and defintitely no raises. A crap company.

  7. Avatar Anonymous May 13, 2013 @ 3:06 am
    Reply

    Does anyone know if the above
    Does anyone know if the above is accurate. I know people who work for HP and they go along with negative stuff being written about the company and Whitman. But the above is even more damning.

  8. Avatar Anonymous January 19, 2014 @ 10:57 am
    Reply

    I recently left HP EDS in
    I recently left HP EDS in Europe. I had been with EDS for 20 years. I believe all of the above observations are correct. You would be hard pressed to find an employee in Germany, Holland, France or the UK with much if any good to say. They do underpay, they do cheat and lie to employees, their management is pretty poor and they have mostly unhappy customers who are trapped into one sided contracts. From my exposure to the USA side of the business, and from the posted comments, I suspect they are just as unhappy as the Europeans. It has become a very awful place to work.

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