December 21, 2000 3:30 PM PST

HP delays raises, cuts temp workers

In an effort to cut costs and meet earnings estimates, Hewlett-Packard is asking managers to delay salary increases, cut back on using temporary workers, and encourage employees to take vacation time, sources close to the company said.

HP is asking managers to put off planned pay raises for three months, so raises set to go into effect in February would not occur until May, sources said. Such a move is expected to save HP at least $140 million for the fiscal year. The details also are outlined in a memo that is presented as an internal HP document.

HP spokesman Dave Berman declined to confirm specific details of HP's cost-cutting plans or the contents of the memo. Nonetheless, he said that HP is taking measures to control expenses.

"We told securities analysts earlier this month that we would be taking some cost-cutting moves," Berman said. "We're doing that. HP has a tradition of pulling together to make short-term sacrifices for the long-term good of the company."

HP is also looking to cut off-site meetings, travel expenses and equipment purchases and will require managers to reduce use of temporary employees and contractors by 20 percent in January, sources and the memo said. Though it is not shutting down for the holidays, HP is asking each worker to take at least five days of paid time off between now and Jan. 31.

Such moves are said to be reminiscent of past belt-tightenings, when workers were asked to take a day off every two weeks without pay.

Like nearly every other PC maker, HP is feeling a financial pinch because of declining PC sales. In November, executives said they felt comfortable with earnings estimates for the current quarter but admitted PC sales were down.

HP subsequently told financial analysts that it planned to eliminate some divisions, change compensation structures for managers, and take other cost-cutting measures. CEO Carly Fiorina said that many HP managers would not get bonuses.

In November, the company missed earnings estimates by 10 cents a share.

HP isn't the first company to send a cost-cutting missive as the year winds down. Sun CEO Scott McNealy and Microsoft CEO Steve Ballmer both sent memos this week to employees stating that costs will need to be cut next year.

News.com's Stephen Shankland and Michael Kanellos contributed to this report.

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