HP Bets $1 Billion, Will Cut 9,000 Jobs In Services Overhaul

With cloud computing squarely in its sights, Hewlett-Packard Tuesday unveiled a $1 billion plan to invest in its Enterprise Services business. That investment will result in the slashing of more than 9,000 jobs as the company moves to an automated and modernized services delivery infrastructure.

The bulk of the $1 billion will be dedicated to "fully automated, standardized, state-of-the-art commercial data centers" built on HP's converged infrastructure and operated by its management software. The shift takes cues from HP's own internal IT transformation and will chop the number of HP's 100-plus global data centers in half to fulfill its consolidation and automation vision.

HP said the transformation will allow clients to move applications to what it is calling "modernized infrastructure platforms" to run businesses more efficiently and quickly.

Ann Livermore, executive vice president of HP's enterprise business, said on a conference call Tuesday that the $1 billion investment comes with HP's EDS integration ahead of schedule. HP acquired EDS, a $22 billion services behemoth, in 2008 for $13.9 billion. HP CFO Cathie Lesjak said on the call that HP's new investment represents the second phase in joining HP and EDS.

Livermore said this new phase will usher in a "whole new era" of enterprise services delivery.

"We have an opportunity to further accelerate our competitive advantage," Livermore said. "We think the next 10 years are going to be about who can automate the delivery of services."

The goal of the multiyear plan is for HP to consolidate its Enterprise Services' commercial data centers, management platforms, networks, tools and applications to build a scalable, modernized and automated IT infrastructure, Livermore said.

While Livermore stopped short of saying that cloud computing is the primary focus of the massive investment, she noted that HP will focus heavily on the cloud and other new technologies. The investment will tackle a combination of IT services including cloud computing, outsourcing and on-premise services, Livermore said.

"[HP will] push very hard to have a management position in the cloud as well as a management position in on-premise," she said.

"Certainly, the cloud aspects of it are important," Livermore said later, adding that the ultimate goal of the investment is to "use technology to automate the delivery of services."

Along with the $1 billion investment comes a sweeping restructuring plan for HP that will result in the loss of 9,000 jobs over several years, relying heavily on attrition and not replacing employees who leave due to retirement or other reasons. Most eliminated positions will be the by-product of data center consolidation. Meanwhile, according to HP, roughly 6,000 new jobs will be created in sales and delivery as a result of the investment.

The Enterprise Services transformation will start with the launch of fully automated, standardized state-of-the-art data centers and toolsets. It will also involve the reduction of HP's commercial data centers, the transformation of clients to HP Converged Infrastructure and management software. HP also will be able to expand its services offerings with new private cloud infrastructure services and desktop-as-a-service capabilities, Livermore said.

"These sets of actions will enable HP to grow better than the market," Livermore said.

To fund this investment, HP will take a charge of approximately $1 billion over a multiyear period that will be included in its GAAP financial results, HP said in an SEC filing on Tuesday. Once completed, the transformation is expected to generate annualized gross savings of approximately $1 billion and net savings after reinvestment in a range of between $500 million and $700 million by the end of fiscal year 2013, Lesjak said.