HP surprises Wall Street with size of EDS job cuts

But the size of the job cuts--24,600 jobs over the next three years, nearly 8 percent of HP's 320,000-employee work force--came as a shock when HP laid out its plans Monday for integrating EDS.

The surprise could provide a lift for Palo Alto-based HP's stock price Tuesday because of the potential cost savings from the dramatic reduction in staff and HP Chief Executive Mark Hurd's track record for wringing more profits out of lean operations.

"Today's story is kind of an eyebrow-raiser--I was surprised at the magnitude of the cuts," said analyst Bob Djurdjevic with Annex Research.

Djurdjevic added that EDS had been cutting jobs before HP bought it, and some investors were concerned those cutbacks weren't addressing a key problem for EDS in the need to ink more profitable deals. That challenge now falls to HP.

The cuts represent HP's most aggressive cost-cutting move yet under Hurd, who engineered the $13.9 billion acquisition to challenge IBM Corp. for more of the lucrative, long-term business of helping companies manage their computing infrastructure.

Most of the cuts will come from within EDS's ranks, and nearly half will be jobs in the U.S., HP announced Monday after the stock market closed. HP said it plans to eventually add about half the positions back as different jobs in different departments within the company.

Some of the areas expected to get hit include the finance, human resources and legal departments, areas where there are traditionally overlapping duties within combined companies.

HP had not previously detailed how many employees of the combined company would lose their jobs. Before the acquisition, HP had 178,000 people and EDS had 142,000.

HP expects to save $1.8 billion per year from the cuts once the restructuring is complete. The company will incur a $1.7 billion charge in the current three-month period, its fiscal fourth quarter, for a goodwill adjustment and other costs connected to the restructuring.