November 20, 2002 2:21 PM PST
HP tops estimates, plans more job cuts
The company also said it plans to cut 1,100 more jobs than it had recently announced.
For the three months ended Oct. 31, the company earned $390 million, or 13 cents per share, on revenue of $18 billion. That compares with a loss of $505 million, or 17 cents per share, on revenue of $18.2 billion for the same quarter a year ago, when combining the results of HP and Compaq Computer.
Excluding $331 million in restructuring and other charges, HP earned $721 million, or 24 cents per share, compared with $238 million, or 8 cents a share in the year-ago quarter. Analysts were expecting the company to report earnings of 22 cents a share, according to tracking company First Call.
For the current quarter, HP affirmed Wall Street consensus estimates of $18.4 billion in revenue and 27 cents earnings per share, excluding charges. However, CEO Carly Fiorina said she sees no signs of significant growth in tech spending. "There are no clear signs yet of sustained improvement, and we aren't counting on a strong holiday buying period."
HP's earnings report comes a week after president Michael Capellas stepped down to become head of WorldCom. HP has been trying to make the case that it has finished the bulk of its merger-related integration, six months after completing its acquisition of Compaq.
HP said its merger-related cost savings for the second half of fiscal 2002 were $651 million, 30 percent above its goal of $500 million. The company cut 12,500 jobs, 2,500 more than it had originally planned. $257 million worth of the cost cuts came from work force reductions, HP said.
The company said it plans to cut a total of 17,900 jobs by the end of fiscal 2003. That's up 1,100 jobs from its most recent update and 2,900 jobs from its original forecast. The new job cuts have already taken place as part of a voluntary work force reduction program, primarily in Japan, HP said in a statement.
"We're cutting costs, boosting productivity, delivering more for our customers and shareowners, and investing in the future. Our strategy is working, and we're picking up momentum," Fiorina said in a statement.
While analysts had generally expected a solid quarter from HP, several analysts expressed concern this week that dissatisfaction is growing among HP resellers since the company formally unveiled its new PartnerOne program earlier this month. The program replaces a premerger HP strategy known as the "hard deck" policy, under which the company targeted only certain large corporate accounts for direct sales, leaving other accounts to HP resellers, or "channel partners."
"We believe discontent among HP's channel partners is a real issue, particularly in Europe, creating opportunity for IBM and even Dell Computer," wrote Banc of America Securities analyst Joel Wagonfeld in a research note. "We think that HP's new PartnerOne program is alienating many channel partners."
That view was echoed by Thomas Weisel Partners analyst Kevin Hunt in a research note Tuesday.
"We now believe that HP could lose more share in the near term than we had previously expected, as...distributors and customers are unsatisfied with the company's new channel partner program," Hunt said. "They could be seeking out alternative vendors."
HP said its enterprise systems business, which includes servers and storage, significantly narrowed its operating loss during the quarter to $152 million, down from $270 million in the prior quarter. Revenue of $4.1 billion was up 8 percent from the prior quarter but down 5 percent from a year earlier.
In its PC business, HP also narrowed its losses, with margins at -1.7 percent, improved from the -4.2 percent margins in the prior quarter. Revenue was $5.1 billion, up 6 percent sequentially and down 6 percent year over year. Consumer PC revenue was up 16 percent sequentially and down 13 percent year over year, while business PC revenue increased 3 percent sequentially and was essentially flat year over year.
HP said its services business returned to double-digit profit margins in the quarter, but revenue dipped 3 percent, to $3.1 billion, from a year earlier amid a weak IT services market.
Once again, HP's top performing unit was its printer business, which posted a $926 million operating profit, up 14 percent sequentially and 89 percent year over year. Revenue increased 18 percent from the prior quarter and 12 percent year over year, to $5.6 billion.
Fiorina said HP has merged its work force in all but two countries: Germany and France, where the company is still in consultation with worker unions. Fiorina said the integration in those countries should take place next year.
Shares of HP were up ahead of the earnings report, trading near the close at $16.91, an increase of 36 cents, or more than 2 percent. They raced higher in after-hours trading, changing hands recently at $18.28 on the Island ECN network.