HP blames weak results on economy

Citing the softening economy, a continued slowdown in its corporate IT business and internal sales and marketing issues, Hewlett-Packard on Wednesday reported a 60 percent decline in pro-forma operating profits for its fiscal second quarter and warned that sales may be lower than expected in the current three-month period.

The computer maker said its pro-forma earnings from continuing operations totaled $356 million in the quarter ended April 30, down from the year-earlier level of $887 million. Second-quarter revenue fell 4 percent on a year-to-year basis, from $12 billion to $11.6, and was off 3 percent from the level that HP reached in its fiscal first quarter.

The results, HP's third consecutive weak showing, were in line with a reduced-expectations warning that the company issued last month. At that time, HP also announced plans to eliminate up to 3,000 management jobs in its second round of workforce cutbacks since January.

Carly Fiorina, HP's chairman, president and CEO, said during a conference call this afternoon that global economic conditions played a big role in dampening second-quarter sales. But, she added, HP also continues to wrestle with a series of internal problems.

"While clearly macro economic challenges had an impact, we cannot pin all of the blame on the economy," Fiorina said. "Some of the challenges are related to channel and go-to-market [issues] that are taking some time to fix." Those issues particularly affect HP's enterprise business operations, she noted.

HP has been tweaking its direct sales strategy over the past few months in an effort to deal with channel-conflict problems that were also blamed for contributing to a sales slowdown in the company's first quarter. The goal is to address growing concerns that HP hadn't clearly differentiated which users it would deal with directly and which it would allow resellers to approach, according to company executives.

As part of the changes that are being made, HP identified 500 large users that will still qualify for direct sales and detailed plans to help resellers generate more customer leads. Fiorina said HP is making "steady improvement" in resolving the issues, but she noted that "the systemic, structural changes we are making in these areas are not quick fixes."

On the demand front, Fiorina said a continued slowdown in corporate IT spending, particularly in Europe, contributed to a 1 percent year-to-year decline in HP's enterprise business during the second quarter. Total Unix server sales dipped 13 percent, with purchases of midrange machines dropping by nearly one-third compared with last year's quarter.

Fiorina attributed the midrange decline to soft demand from users in the telecommunications industry, an increasing trend towards server consolidation and competiton from rival vendors. On a brighter note, she said, sales of HP's high-end Unix servers grew by 3 percent compared to the year-earlier quarter.

"There is no question this was a tough quarter for us, but we are seeing signs of progress," Fiorina said. Going forward, she added, HP needs to focus on "extremely disciplined expense control and asset management, and it also must stay focused on generating revenue."

However, Fiorina also warned that economic conditions will continue to put pressure on the company's revenues during its fiscal third quarter. HP, which previously said third-quarter revenue would likely be flat with the second-quarter level, is now forecasting that business could drop off by as much as 5 percent sequentially.

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