HP beats forecasts, but will cut jobs
Published: 21 May 2003 09:58 BST
Buoyed by profit improvements in its computing businesses, Hewlett-Packard on Tuesday reported second-quarter earnings and revenue that topped analysts' expectations.
However, on a conference call with analysts, HP chief executive Carly Fiorina said that the company plans to cut more jobs over the next six months, including 1,200 more jobs in its high-end computing business and an unspecified number of cuts in its services business. The company has already cut 16,600 jobs in the past year out of a planned 17,900 the company is cutting in the wake of its Compaq Computer acquisition, Fiorina said.
"Although we are pleased with the (progress) of our enterprise systems business we still have more work to do," Fiorina said, adding that the services industry is also seeing weak demand.
HP said it earned $659m, or 22 cents per share, on revenue of $18bn for the three months ended 30 April. In the same quarter a year ago, the company earned $252m, or 13 cents per share, on revenue of $10.6bn. However, those earlier results exclude the performance of Compaq, which HP acquired in May 2002.
Excluding certain charges, HP said it would have earned 29 cents per share. On that basis, analysts were projecting earnings of 27 cents per share on revenue of $17.7bn, according to earnings tracking firm First Call. In February, the company forecast earnings of 27 cents per share, in line with what analysts were projecting at the time.
"One year after the merger, we've reduced structural costs by $3.5bn on an annualised basis. Our business model is generating a more balanced revenue and profit mix, and our operating cash generation capabilities -- more than $2.5bn this quarter -- are proving to be stronger than ever," Fiorina said in a statement.
The technology giant did not give specific guidance for the current quarter, but said it was comfortable with consensus estimates that it would have revenue of $36.4bn and per share earnings of 62 cents, excluding charges, in the second half of the fiscal year.
"We see no short-term catalysts for improvements in IT demand but HP continues to execute well," Fiorina said in a conference call with analysts.
As for the just-reported quarter, HP said it narrowed the loss in its Enterprise Systems Group -- which includes servers, storage and software -- to $7m, down from $83m a quarter ago. Revenue was $3.86bn, up from $3.74bn last quarter.
In its PC business, sales dipped slightly to $5.12bn from $5.14bn. The unit remained in the black, although profits dipped to $21m from $33m in the prior quarter.
The company would not provide last year's numbers for its business segments on either a combined company or a stand-alone basis.
Sales in the printing and imaging business fell slightly, to $5.52bn from $5.61bn. Profits, however, rose to $918m from last quarter's $907m result. In the services business, sales climbed to $3.03bn from $2.96bn in the prior quarter, contrasting operating profits, which declined to $301m from $341m.
HP's financing business had revenue of $501m in the quarter, down from $517m in the prior quarter, with profits climbing to $21m from $14m.
HP also listed a business category called "corporate investments" that had revenue of $84m and a loss of $44m.
Investing in the future
In addition to its operating units, HP posted a $12m loss on investments and had $66m in costs not allocated to a specific business. The company also had $234m in restructuring costs, as well a number of various acquisitions related and other items.
A year after HP acquired Compaq, many analysts praise the company for its cost-cutting but still question whether the company is any better positioned to compete against IBM's breadth and Dell's efficient sales model.
The job cuts are the latest moves in HP's efforts to tweak its strategy in the enterprise space, where it has been struggling to return to profitability. It shuffled some executives earlier this month, but said it remains on track to make money by the end of its fiscal year in October.
As for the overall economic outlook, Fiorina told analysts that it is different for different parts of the world.
"The US appears to be stable, but (there is) no catalyst for improvement," Fiorina said. "Europe now appears to be beginning to weaken. Asia continues to move along here. We have seen no impact of SARS (severe acute respiratory syndrome) to date."
Melanie Hollands, president of hedge fund firm Koala Capital, said that HP's results and outlook are benefiting from a weak dollar as well as a lower tax rate.
"HP continues to endure weakening demand across most of its product segments and ongoing distractions from operations, as a result of reorganisation," Hollands said. "Although HP has significant technology assets and a substantial base of stable, profitable revenue from both its printing and supplies segments, these positives appear all but offset by ongoing pressure from increased competition, commoditisation, execution challenges and lack of strategic focus -- which all comes within the context of a weak economy and continued declines in overall IT spending."
Hollands said she was not surprised that HP had announced further job cuts.
"Their cost structure is not yet competitive with Dell's, and there is a way to go on that front," Hollands said.
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