HP-EDS merger could lead to services job cuts

Increased IT automation may play a role in workforce decisions, EDS CEO says

Hewlett-Packard Co. plans to complete its $13.9 billion acquisition of Electronic Data Systems Corp. during the second half of this year, initially creating a combined company of 309,000 employees. But job cuts may be on the way, as the two companies combine their operations and try to move customers toward increased automation of data centers.

In acquiring EDS via a deal that was announced today, HP is taking over a company with 137,000 employees — nearly two-thirds of them outside the U.S. Many of those workers — at least 23,000 as of last July — are in India, but EDS has staffers in just about every other major country as well.

During a conference call this morning, neither HP CEO Mark Hurd nor Ron Rittenmeyer, the top executive at EDS and soon to be head of a new EDS business unit within HP, offered clear specifics about what will happen to the workforces of the combined companies. But they did play a bit of a good cop/bad cop routine when discussing that issue.

Hurd said that EDS employees "will benefit from the opportunities that are created through this acquisition, including our ability to compete more effectively in existing areas and push into new growth opportunities."

Rittenmeyer, in response to a question about possible job cuts, said that the overlap between the HP and EDS customer bases "is not very extensive." But EDS is "continuing to streamline our workforce," Rittenmeyer added.

He didn't explain exactly what he meant by streamlining, but EDS has been shifting more work to overseas locations around the globe as part of its Best Shore outsourcing services strategy. Only about 47,000 of the company's workers are located in the U.S. at this point.

Rittenmeyer also said that increased automation may play a role in workforce decisions. Hurd believes that automation is extremely important to HP, which is consolidating its own data centers into six new facilities with increased remote management capabilities. Although offshoring can save money for users, Hurd has argued that lights-out IT operations are a more effective way to eliminate costs and improve service levels in data centers. And EDS manages a lot of data centers.

"We are going to continue to look at automation, and we are going to continue to look at quality," Rittenmeyer said today. "Automation makes quality and service better for the client and is just part of the natural evolution, so there are always job adjustments."

But there will also be some "great opportunities" for EDS employees after HP completes the acquisition, according to Rittenmeyer. "So I think it's a mix," he said, adding that the two companies are going to look at where they have "synergy" before making any decisions.

HP has a total of about 172,000 employees. The two companies have a combined total of about 209,000 workers who are involved in their IT services businesses, which have combined annual revenues of $38 billion. EDS accounts for the majority of that total, having reported $22 billion in revenue last year.

Copyright © 2008 IDG Communications, Inc.

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