HP/Compaq merger threatens 30,000 jobs

Job losses from the Hewlett Packard (HP)/Compaq merger could be twice as high as was originally claimed, according to analysts.

As Compaq admitted that its sales are worse than expected, analysts are saying that the 15,000 job cuts initially predicted by the companies may not be enough.

Even before they merge the pair are culling workers: HP said it would fire 7000 by the end of October while Compaq said it would shed 8500.

That would leave a combined staff of 150,000 workers. Executives said when they announced the deal that they expected to cut that number by 10 per cent to 135,000. The deal is expected to close in the first half of 2002.

However, analysts say that the number is far too conservative and expect it to double to 30,000 as the market deteriorates.

As if to back up those forecasts, Compaq warned on Monday that it would post a loss in the third quarter, blaming the 11 September terrorist attacks for worse than expected sales. The company expects revenue to be $7.4bn to $7.5bn, down 12 per cent from the second quarter, and predicts a loss per share of between five and seven cents.

Compaq also said it would take a $500m non-cash charge to write down the value of some investments, such as in the internet holding company CMGI.

First Call analysts had predicted third-quarter earnings of five cents per share and revenue of $8.2bn. Compaq stock tumbled nearly seven per cent to $7.77 in after-hours trading.

"The events of 11 September disproportionately affected the current quarter, market demand slowed and transportation and logistics were disrupted," chief executive Michael Capellas said in a statement. "While we remain deeply concerned about the broader global issues, we are intently focused on meeting customer needs in these difficult times."

Although Compaq's chief financial officer Jeff Clarke did not specify that slower sales would lead to more job cuts before the merger, he said in a conference call: "Any time there is weak market demand, we will look harder at our cost cutting."

Eric Rothdeutsch, an analyst at Robertson Stephens, believes the job cuts might be as much as 20 per cent, or 30,000 prople. "They'll have to cut even deeper than they announced. They are not going to have a choice," he said.

The merger, valued at $25bn when it was announced, is now worth $17bn because of the falling share prices of the two companies.