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HP cuts jobs in bid to grow strategic services

HP's Enterprise Services division is set for major cutbacks as the company attempts to reduce operating costs prior to the split in November 2015

Hewlett Packard (HP) is set to cut the headcount in its Enterprise Services division by up to 30,000 people in a bid to cut operating costs by $2bn.

The job cuts are key to the business strategy of HP Enterprise, once it splits in November 2015.

"These restructuring activities will enable a more competitive, sustainable cost structure for the new Hewlett Packard Enterprise," said HP CEO Meg Whitman.

"We've done a significant amount of work over the past few years to take costs out and simplify processes, and these final actions will eliminate the need for any future corporate restructuring."

The cuts come on top of the 55,000 job losses HP previously announced.

The Enterprise Services business has continued to lose money, with a loss of 11% compared to Q3 2014 (or 3% in constant currency), according to HP’s latest financial results.

In a transcript of HP's Q3 2015 results, posted on the Seeking Alpha financial blogging site, Whitman stated: "In Enterprise Services, we're turning the corner in what has been one of the most critical parts of the turnaround. Enterprise Services significantly improved its sequential revenue trajectory and delivered another quarter of sequential and year-over-year profit improvement."

Strategic enterprise services is key for HP Enterprise business as its customers buy public, hybrid and private cloud-based IT infrastructure. Approximately 37% of HP Enterprise's revenue will come from Enterprise Services. The company expects cloud revenue in fiscal 2015 to be approximately $3bn, growing over 20% annually for the next several years. This estimate includes revenue from its enterprise group, software and enterprise services segments, HP stated.

Read more about the HP split

HP's latest results reveal challenges ahead as the company prepares to split.

With the split two months away, HP Enterprise needs to ensure its hardware, software and services groups work and play better together.

The Enterprise Services business came out of HP's $13.2bn 2008 acquisition of EDS but, by 2012, HP had written off $8bn of its value.

As Computer Weekly previously reported, HP appears to have made a substantial amount of job cuts in its services business. For fiscal 2016, HP said it expected revenue from the Enterprise Services group to be flat to down 2% year-over-year in constant currency, representing just a slight improvement of 1% compared to the losses it announced for Q3 2015.

However, with continued focus on cost management and operational improvements, operating margin is expected to further improve to be in the range of 6-7% for fiscal 2016, HP said.

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