HP to miss targets and cut 3,000 jobs

Profit warning from HP means doom and gloom for consumer PC market
Written by Margaret Kane, Contributor on

Blaming a "rapid deterioration" in consumer IT spending, Hewlett-Packard on Wednesday said its second-quarter earnings and revenue will fall short of estimates.

HP also said it would lay off up to 3,000 people in management positions as part of broader cost-cutting moves.

Shares ticked up a bit on the news, rising 95 cents to $30.20 shortly after the opening bell.

The company now expects to see earnings of between 13 cents and 17 cents per share for the second quarter, compared with the 44 cents per share it earned a year ago. The figures include a $150m charge to write off consumer product inventory. Wall Street analysts were expecting the company to record earnings of about 35 cents per share, according to First Call.

Revenue should be 2 percent to 4 percent lower than the $11.9bn recorded in the first quarter, according to the company. Analysts were hoping to see HP record revenue of $12.19bn, according to First Call.

In an effort to trim costs, the company said it would tighten discretionary spending and require employees to take time off, in addition to the job cuts.

Earlier this year, HP announced plans to lay off 1,700 employees in marketing jobs.

Chief executive Carly Fiorina said that the company wasn’t able to predict how badly it would be affected by economic factors when it previously issued guidance about its results.

"At this time, it is quite clear that the US downturn in the consumer market is now spreading to other regions, notably Europe," she said.

In an echo of comments she made last month, Fiorina said recent market data suggests that Europe is seeing a slowdown in PC sales similar to the one in the United States, with "growing softness in the retail sector and increasingly competitive pricing, followed by a more subtle but just as meaningful slowdown in the enterprise space".

HP did see a slight improvement in its enterprise business, Fiorina added, saying that revenue for that division should be flat or slightly higher than in the first quarter.

"Obviously we are talking about -- recovery is too strong a word -- but based on what we know we know, second quarter being a bottom," she said, adding that "I say that with great caution."

The company’s earlier forecasts had been predicated on no further deterioration in the United States, no slowdown Europe and stable exchange rates, and "unfortunately our concerns were warranted", she said.

Consumer PC sales in Europe showed strong gains in 2000, she said, but growth "evaporated" this year.

In the printer arena, the company plans to continue to fight it out to maintain market share, with a focus on the low end. HP did cancel plans to increase capacity for the high-end inkjet business, but Fiorina noted that "we are simply not willing to relinquish any ground in this market".

As for PCs, she said, HP will be "pursuing profitability as opposed to share growth".

Merrill Lynch analyst Thomas Kraemer, however, noted that "the losses for printer hardware and PCs are starting to mount. We do not believe that HP has good visibility here."

HP is not alone among major PC makers in its recent struggles. Compaq Computer said last month that it would miss estimates for the first quarter and cut 5,000 jobs. Dell Computer reported earlier this month that it would post its first quarterly revenue decline in 17 years.

Market research firm Dataquest said last month that worldwide PC sales would grow just over 10 percent, about four points slower than a year ago. And Merrill Lynch analyst Steve Fortuna recently cut his worldwide PC unit growth to 7 percent from 12.5 percent and lowered revenue growth to minus 2.8 percent.

But some companies have indicated that things may be turning around. Intel said Tuesday that its PC sales had stabilised, although weakness in that sector was partially responsible for the chip giant’s drop in revenue.

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