HP tops lowered targets

Hewlett-Packard is trying to shield its bottom line with cost cuts but doesn't expect the top line to start growing yet, the company said Thursday when reporting its fiscal third-quarter results.
Written by Sergio G. Non, Contributor on
Hewlett-Packard is trying to shield its bottom line with cost cuts but doesn't expect the top line to start growing yet, the company said Thursday when reporting its fiscal third-quarter results.

"It's fair to say we don't see any signs of improvement in the market before 2002," HP chief executive Carly Fiorina said during a conference call with analysts.

After market close the technology company reported fiscal third-quarter net income of US$111 million, or 6 cents per share, including one-time events. Excluding goodwill write-downs and nonrecurring items, HP earned 11 cents per share.

The First Call consensus predicted a profit of 4 cents per share for HP's third quarter, which ended July 31. However, that consensus figure was lowered after the company last month warned of disappointing results. Prior to that announcement, the analyst consensus called for a third-quarter profit of 19 cents per share.

Shares of HP traded at US$24.59 in after-hours activity on the Island ECN immediately following the release of quarterly results. They rose 3 cents to US$24.13 in Thursday's regular trading ahead of the news.

Third-quarter revenue fell 14 percent year over year to US$10.1 billion. The decline was in line with HP's warning.

Overall revenue declines will continue, if the company's forecast is correct. HP's fourth-quarter sales could see a steeper year-over-year decline than in the third quarter, executives said.

Although HP is in the process of cutting 6,000 jobs, pro forma expenses in the fourth quarter should be about the same as in the third quarter, said Robert Wayman, HP's chief financial officer. The company tallied about US$10 billion in third-quarter operating costs.

HP's fourth-quarter expenses in the past have been higher than in the third, Wayman said.

Trouble in consumer land
Consumer revenue slid 21 percent year over year in the third quarter. Business revenue dropped 11 percent.

The consumer sector weighed heavily on HP's third-quarter operations. Home PC revenue fell 36 percent from the year-ago period. Sales dropped 10 percent for HP's Imaging and Printing Systems unit, the company's largest division.

And between a weak economy and an ongoing price war in the PC sector, don't expect the consumer sector to look good anytime soon, said Shebly Seyrafi, analyst with A G Edwards.

"That's going to be a lingering problem for the company over the next few quarters," he said.

HP has come under fire recently, including an article in Barron's that questioned the company's ability to make a profit in anything besides printers.

But Salomon Smith Barney analyst John Jones believes the company is making progress. "While structural and product cycle issues exist, we believe these are now much closer to positives than negatives," Jones wrote in a research note this week.

Sticking with PCs
Computing systems revenue slid 22 percent year over year, with home PCs seeing the biggest drop in sales. Commercial desktop PC revenue fell 23 percent.

Despite the recent lackluster performance, HP will stay in the PC business, Fiorina said.

"It's important to remember the PC business is more than a couple of quarters old," she said. "It has been and we think will return to be in more normal times a good solid performer for us. It's also fair to say that our PC business is not an easily separable item."

PCs help sell other items, such as printers that are often bundled with home PCs, Fiorina said. And PCs are a relatively low-cost business for HP because the company doesn't do its own PC manufacturing, she said.

Unix server revenue in the third quarter slid 22 percent from a year earlier, although sales of the company's high-end Superdome servers increased 45 percent. PC server revenues dropped 29 percent. Notebook revenue increased 5 percent.

Storage revenue dropped 12 percent in the third quarter. Software revenue fell 16 percent.

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