HP Belt Tightening Will Save $1 Billion Annually

The company said that beginning in fiscal year 2009, its restructuring plan will lower IT costs by more than $1 billion per year from fiscal year 2005 levels. HP also said that the cost reduction is "even more impressive" considering that the company added more than $25 billion in revenue during the three years since the transformation began.

"For the transformation to work, we had to invest money to save money," said Mark Hurd, chairman and chief executive officer, in a statement. "With a lower IT cost structure we are able to reinvest dollars into go-to-market efforts."

The reorganization focused on five major initiatives: next-generation global data centers, portfolio management, workforce effectiveness, building a world-class technology organization and a true enterprise data warehouse.

Specifically, HP is reducing spending on internal IT from approximately 4 percent of revenue in 2005 to less than 2 percent in 2009.

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HP is also consolidating more than 85 internal IT legacy data centers globally to six next-generation data centers in three geographic locations equipped with new, standardized and automated technology. HP said that these data centers have 342,000 square feet of computing white space -- expandable to more than double that amount -- to accommodate growth, including acquisitions such as EDS.

The company is also consolidating over 6,000 applications running the business to approximately 1,500 standardized applications.

Additionally, HP is decreasing the number of servers by 40 percent while increasing processing power by 250 percent by using the company's virtualization and energy-efficiency technologies.

Other initiatives will be reducing networking costs by 50 percent while tripling bandwidth, eliminating more than 700 data marts and creating one enterprise data warehouse where employees are accessing consistent data to make business decisions.

"HP's IT transformation was not just a technology initiative within the IT organization, it was a business strategy adopted throughout the company," said Randy Mott, executive vice president and chief information officer, in a statement. "We're just getting started. We're now in a great position to enable future business growth."