30,000 May Lose Jobs in Merger of HP, Compaq
Hewlett-Packard Co.’s purchase of Compaq Computer Corp. may result in as many as 30,000 firings, twice as many as expected, because of sagging demand and overlapping products, investors said.
The two companies have announced plans to chop 15,000 jobs, as they eliminate redundant positions and try to squeeze cost savings from the combination. That’s not enough, shareholders said.
“They could take a lot more out,” said Patrick Adams, a money manager at Choice Investment Management, which owns 300,000 Compaq shares.
The Sept. 11 attacks that destroyed the World Trade Center and damaged the Pentagon have prompted several analysts to reduce sales and profit forecasts for personal-computer makers such as HP and Compaq because consumers and businesses will hold off spending.
Even before the attacks, analysts and investors had expected more firings than announced because the two companies have similar products, and many acquisitions result in more reductions than expected.
Other PC makers such as Dell Computer Corp. and Gateway Inc. may eliminate jobs. Dell has fired 5,700 employees this year while Gateway has cut its payroll by more than 9,000.
“Everyone now is taking another look at it,” said Kimberly Alexy, an analyst with Prudential Securities Inc. “Dell has made a lot of the necessary cuts. Gateway is still looking at whether to cut deeper. Compaq and Hewlett-Packard are the ones more likely to cut.”
The proposed $17.4-billion purchase hasn’t been well-received. The drop in Hewlett-Packard’s stock has cut the value of the deal by a third, from $25 billion when it was announced Sept. 3.
HP, known for its reluctance to fire employees, will have fired 7,000 by the end of October while Compaq this year is firing 8,500. When the two companies combine, they will have approximately 150,000 workers, and executives said they expect to trim that by 10% to 135,000 workers.
Compaq Chief Executive Michael Capellas suggested there might be more firings when he told analysts on Sept. 4, “If you benchmark raw numbers, it’s probably on the conservative side.”
Palo Alto-based Hewlett-Packard is aiming to complete its purchase by the middle of next year after it has received approval from shareholders and government antitrust regulators.
When the companies are combined, executives hope to save $2 billion in 2003 and $2.5 billion by the middle of fiscal 2004. The fastest way to do that is to reduce employees, said Eric Rothdeutsch, an analyst at Robertson Stephens Inc. who doesn’t own either stock.
“They’ll have to cut even deeper than what they announced,” Rothdeutsch said. “They are not going to have a choice. The company will need to respond to weaker demand conditions.”
