Reports hint at HP outsourcing cuts

HP claims to be focusing its attention on the BPO division

HP may cut some of its outsourcing services after posting quarterly financials yesterday showing a 19 per cent dip in profits to $1.5bn (£973m).

A Reuters report citing sources familiar with the matter claimed that HP is planning to sell parts of its recently acquired EDS outsourcing unit, along with some operations in India, in order to invest more in its technology services division.

However, the sources insisted that HP will not sell any ventures if it is not offered a good price.

The report suggested that HP is particularly interested in cutting back on its business process outsourcing (BPO) business because it does not see it as an area of growth, although it plans to maintain BPO sectors that complement its hardware and software products.

"I don't think it's lost on anybody that HP chief executive Mark Hurd doesn't like the BPO industry," a source told Reuters. "At some point, he is going to look at shedding the BPO revenue, although this may not be the right time because of valuations."

The HP UK offices could not provide comment on the cuts, but HP's growth sector at the moment is in services, where quarterly sales rose 93 per cent to $8.5bn (£5.2bn).

The company's European office flatly denied that the BPO business is up for sale during a call with analysts today, claiming that it is "focusing more and more tightly" on BPO.

Suppliers on the whole remain confident about the state of the outsourcing market at present, according to the National Outsourcing Association (NOA), so it would be unusual for a company to reduce such offerings in a bid to keep above water.

The NOA's quarterly Outsourcing Confidence Index showed that 40 per cent of outsourcing suppliers are more confident in the market than they were in 2008.

However, analyst firms Gartner and IDC shed more light on the issue, suggesting that the overlap between HP and EDS on BPO outsourcing operations would make it a sensible area to axe in an effort to cut costs.

IDC analyst Douglas Hayward argued that the outsourcing of application management needs providers that can offer scale at low cost, which is why India has made big inroads into the area.

HP could cut back on providing application management outsourcing, and focus on its strong points of support and infrastructure outsourcing, he said.

HP recently asked US-based EDS staff to take a third round of pay cuts for the year of as much as 30 per cent. Staff in the UK and Ireland have seen their wages cut by up to five per cent.