Sept. 16 (Bloomberg) -- Hewlett-Packard Co. Chief Executive Officer Mark Hurd, in his biggest round of job cuts, will cut 24,600 jobs to save $1.8 billion as he incorporates Electronic Data Systems Corp. The shares rose the most in seven months.

The cuts amounts to 7.5 percent of the combined staff and will take place over three years, the company said yesterday. Hewlett-Packard, the world's largest personal-computer maker, bought EDS last month for $13.2 billion to more than double revenue from services.

Hurd, who eliminated 15,000 positions after taking over in 2005, is aiming to boost profitability at EDS as he goes after International Business Machines Corp. for clients that want to outsource management of computer networks and data centers. Profit margins at EDS, founded in 1962 by H. Ross Perot, will be half those at Hewlett-Packard's services unit in fiscal 2009.

``Hurd is doing the hard work to make the investment pay off,'' said Roger Kay, president of research firm Endpoint Technologies Associates in Wayland, Massachusetts. ``There's going to be a lot of interim pain.''

Hewlett-Packard, based in Palo Alto, California, climbed $3.08, or 6.8 percent, to $48.41 on the New York Stock Exchange at 4 p.m., the biggest gain since Feb. 20. The shares have dropped 4.1 percent this year.

Half the job cuts will be in the U.S., Hewlett-Packard said. The company will begin telling employees soon if their positions will be eliminated.

The reductions will occur in administration, legal and other operations that overlap, and half will be completed by October 2009. Hurd, 51, plans to hire workers in new positions, including sales. The number of people hired will represent about half the total number of jobs cut, the company said.

`Tough Stuff'

``I am a big believer that having the most efficient cost structure directly relates to your ability to scale and grow,'' Hurd told analysts at a meeting in San Francisco. ``We've got to do tough stuff.''

Services accounted for 17 percent of Hewlett-Packard's sales last quarter. The acquisition of EDS, the second-biggest computer-services provider, catapulted the company to second in that market behind Armonk, New York-based IBM.

Hewlett-Packard generated eight times as much profit per employee as EDS last year. Hewlett-Packard had earnings of $42,200 per worker in fiscal 2007, which ended in October of that year, compared with $5,130 at EDS, according to data compiled by Bloomberg.

Dell Inc., the second-biggest personal-computer maker, said today it will book costs from job cuts amid slowing demand this quarter. Dell had a profit of $33,400 per worker last year.

Back-to-School

Hewlett-Packard Chief Financial Officer Cathie Lesjak declined to comment today on Dell or demand during the back-to- school shopping season.

Instead, she reiterated that Hewlett-Packard is confident it will meet its earnings forecast of $1.01 to $1.03 a share this quarter. A strengthening U.S. dollar may weigh on its sales forecast of as much as $30.3 billion, Lesjak said at a Bank of America Corp. conference in San Francisco. International sales accounted for 68 percent of revenue last quarter, allowing Hewlett-Packard to benefit from a weaker U.S. dollar.

Scott Craig, an analyst at Bank of America in New York, said in a note today that Hewlett-Packard's targeted cost savings are bigger than his $1.5 billion estimate. Analysts at Goldman Sachs Group Inc. and Merrill Lynch & Co. raised their price estimates for the stock.

EDS's Margins

EDS's services business will have an operating margin, or profit as a percentage of sales, of 6 percent to 7 percent in fiscal 2009, Hewlett-Packard said. That's half of Hewlett- Packard's projected services margin of as much as 14 percent.

Combined, the two companies' services units will have margins of 9 percent to 10 percent for fiscal 2009, rising to as much as 15 percent in the long run. Sales of the combined business will grow 4 percent to 6 percent a year, Hewlett- Packard said.

The purchase of Plano, Texas-based EDS was Hewlett- Packard's largest since the $18.9 billion takeover of Compaq Computer Corp. in 2002. At the time, it cut 16,800 employees, or about 11 percent of the combined workforce.

The Compaq deal helped expand Hewlett-Packard's PC and server business, boosting margins for the hardware group 7 percentage points from 2005 to 2007. During that time, Hurd bought six software companies for $6.5 billion, increasing software margins 14 points, Hewlett-Packard said.

The company, which has made 30 acquisitions in the past 3 1/2 years, also is looking at ways to save money on real estate, procurement and information-technology spending.

``This is big and important to us,'' Hurd said. ``We know what we're doing.''

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

Last Updated: September 16, 2008 16:32 EDT