HP warns of another weak quarter, plans job cuts

Hewlett-Packard today warned that its financial results will fall below expectations for the third straight quarter and said it plans to implement more cost-cutting actions, including the elimination of up to 3,000 management jobs.

HP said its corporate IT business is starting to show "a slight improvement" after being hit by a spending slowdown late last year. But the company added that a "rapid deterioration" in sales to consumers is expected to result in an overall revenue decline of 2 per cent to 4 per cent on a year-to-year basis in its second fiscal quarter, ending April 30.

Because of the revenue dropoff, HP said, second-quarter profits will likely come in at between US$250 million and $330 million. That's less than half the consensus estimate of about $675 million that had previously been made by financial analysts who were surveyed by Boston-based First Call/Thomson Financial.

Carly Fiorina, HP's chairman, president and CEO, said in a statement that second-quarter sales of the company's systems and software to corporate users are expected to either be flat with first-quarter levels or to increase slightly. But, she noted, the downturn in purchases by consumers in the U.S. "is now spreading to other regions, notably Europe."

The planned 3,000-employee cutback would lower HP's workforce by about 3 per cent and is the second round of job cuts announced by the company since January. Earlier, HP said it would eliminate up to 1,770 jobs through layoffs that would primarily affect workers in its marketing operations (see story).

Other cost-cutting moves detailed today include a requirement that employees take additional unpaid days off and a pledge that the company will continue to tightly control its discretionary spending. Fiorina said HP executives are trying "to achieve the right balance between adjusting costs and expenses downward ... while continuing to make the necessary investments in areas such as [research and development]."

HP's revised second-quarter projections include a $150 million inventory charge for writing down the value of unsold computer products targeted at home users. The company currently expects revenue in its fiscal third quarter to be flat with the anticipated second-quarter level, Fiorina said.

Meanwhile, Internet giant AOL Time Warner today reported total revenue of $9.1 billion for the first quarter ended March 31, up 9 per cent from $8.3 billion in the same period a year ago. Operating earnings rose 20 per cent on a year-to-year basis to $2.1 billion, up from $1.8 billion, although the company said it had a net loss of $1.4 billion due partly to costs related to the merger of America Online and Time Warner.

In addition, struggling disaster-recovery and IT-leasing vendor Comdisco today said the scheduled release of financial results for its fiscal second quarter is being delayed by a week to May 3. Norman Blake Jr., who took over as Comdisco's chairman and CEO in late February (see story), said in a statement that the company needs more time to complete a strategic evaluation of its business units.

George A. Chidi Jr. of the IDG News Service contributed to this report.

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