Hewlett-Packard Co said it aims to boost margins by cutting jobs and reallocating spending to more profitable technology services, shrinking its workforce by a net 3,000 jobs, or 1 percent, over three years.
The move, which will result in a $1 billion charge, comes as rivals like IBM and Cisco Systems Inc vie for supremacy in the lucrative business of fitting out and helping run corporate data centers that handle communications and store huge amounts of information.
HP made a major expansion into technology services with its $14 billion acquisition of EDS in 2008, and it said Tuesday's announcement was a further attempt to bolster its enterprise business.
Over the past 20 months, we focused on integrating EDS and improving profitability, said Tom Iannotti, senior vice president and general manager of HP's Enterprise Services. Now that the integration is largely complete, we have identified significant opportunities to grow and scale the business.
HP plans to cut 9,000 jobs over three years as it shuts down older data centers. But it will also add 6,000 new positions over the same period as it invests in more advanced data centers and expands its global operations.
The company currently has about 304,000 employees worldwide and is the world's largest technology company by sales.
HP said the new data centers will feature more powerful computers that help customers run complex applications, and introduce more automated infrastructure. Most of the new hires will be in sales and services, it said.
HP said severance and asset impairment charges will result in a $1 billion restructuring charge over three years, with half of that to be recorded in the third quarter.
On a net basis, the company sees savings of $500 million to $700 million annually by the end of its 2013 fiscal year.
Large technology companies like HP and International Business Machines Corp have been vying to dominate corporate capital spending and to impress Wall Street with higher margins.
IBM has improved margins by focusing on profitable services contracts, and it recently announced plans to expand its services and software business by spending $20 billion on acquisitions through 2015.
Collins Stewart analyst Louis Miscioscia said HP had done a good job of cutting jobs at EDS and investing in more automation, but IBM appeared to be still a step ahead.
We believed there was more to be done as HP/EDS works to catch up to IBM in the areas of data center automation and modernization, and thus we are very supportive of this move, he said, reiterating a buy recommendation on HP.
Under Chief Executive Mark Hurd, HP has been cutting costs while simultaneously pursuing multibillion-dollar acquisitions to move into higher-margin businesses.
HP agreed last year to buy network equipment maker 3Com Corp for roughly $3 billion, going directly against communications gear maker Cisco.
Cisco, for its part, has also pitted itself against HP by expanding into servers and all-in-one technology services designed to help companies manage their data centers.
Shares of HP were up 15 cents, or 0.3 percent, at $46.16 in early afternoon, in line with the Dow Jones industrial average <.DJI>.
(Reporting by Ritsuko Ando and Franklin Paul; Editing by Derek Caney and Matthew Lewis)