Massive job cuts at HP

Two things fail to surprise me in the AP article “HP surprises Wall Street with size of EDS job cuts”. That HP took such a big axe to the EDS bloat and that wall street is surprised. Anyone that has ever worked with EDS, especially on the supply side, could tell you how much bloat was within that company.

The EDS purchase itself was essentially an acknowledgment that the HP/Compaq merger did not deliver the value it was supposed to. The sector of Compaq that was often talked up as one of the jewels in the crown was the consolidated support centre which it had acquired from its takeover of DEC. Compaq had subsequently beefed it up with some extra resources, Compaq’s customer base, and some extra top end enterprise knowledge gained from its Tandem acquisition.

HP’s own services business was ok, but nothing special. While they retained all the computer and printer technology, a large part of their services know-how had left the company when they spun off Agilent. With the combined weight of all the services experience and customer connect they had, HP should have been able to duplicate EDS and then competed on a lower cost structure.

Given the many negatives within EDS, old style culture, almost non-existent revenue growth and a high cost structure, the only attractive thing about EDS was probably its share price. The good thing for HP was that there was plenty of fat to chop out, and if they can bring some of the customers across and also change some of the corporate culture of those that remain there is a decent chance they can actually turn EDS into a profitable business.

With wall street power brokers currently trying to keep themselves from collapsing in the mess of their own making, it is no wonder that they might not have their eye on the ball of what is going on in the rest of the business world. While the value of the sharemarket is going down across the board while various mortgage based schemes (which are sometimes hard to distinguish from ponzi schemes) cause panic, most companies are still providing good value to their customers. While some companies that have high debt levels will struggle it should not effect the long term outlook of that many.