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Rough day for Hewlett-Packard
Shares tumble after PC maker posts sour results and warns on 4Q; Fiorina revamps management.
August 12, 2004: 4:42 PM EDT

NEW YORK (CNN/Money) - Shares of Hewlett-Packard Co. tumbled as much as 17 percent on Thursday after the PC maker reported weaker-than-expected quarterly earnings and warned that it will miss Wall Street forecasts for the fiscal fourth quarter.

The results prompted HP Chief Executive Officer Carly Fiorina to shake up management. As she said in an internal e-mail to employees, obtained by Reuters, the company will immediately replace Peter Blackmore with Mike Winkler, chief of marketing, as head of the Customer Solutions Group.

The group is responsible for direct sales to HP's large corporate customers, small- and medium-size businesses and public-sector customers.

In the e-mail, Fiorina also said that Jack Novia will replace Jim Milton as CSG senior vice president and managing director for the Americas region.

Bernard Meric will replace Kasper Rorsted as CSG senior vice president and managing director for the Europe Middle East and Africa region, Fiorina wrote in the e-mail.

The reorganization came after HP surprised the market earlier on Thursday by posting quarterly earnings a week before they were expected and well below forecasts, citing weak sales of computer servers and storage equipment.

Hewlett-Packard reported net income of $586 million, or 19 cents a share, for its fiscal third quarter ended in July, up from $297 million, or 10 cents a share, a year earlier.

Excluding special items, the company reported profits of 24 cents a share versus 23 cents a share a year earlier. But this was well below the average forecast of 31 cents a share, according to analysts surveyed by research firm Thomson First Call.

Shares of HP (HPQ: Research, Estimates), a component of the Dow Jones industrial average, closed more than 13 percent lower and are now down about 25 percent for the year.

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The company also warned that fiscal fourth-quarter earnings per share, excluding special items, will be between 35 and 39 cents, compared with 36 cents a year earlier. First Call's forecast was for EPS of 43 cents, with a range of estimates from 41 to 47 cents.

HP's warning is the latest in a series of disappointing results from large tech firms. Cisco Systems (CSCO: Research, Estimates), the largest maker of networking equipment, gave tepid sales guidance for its fiscal first quarter Tuesday. Chip manufacturer National Semiconductor issued a sales warning on Tuesday as well.

It appears that the recent weakness in the overall economy is taking its toll on tech companies.

"The economy did a little bit of a stutter step, and that is why we did not see the normal acceleration in demand towards the end of the quarter," said HP Chairman and CEO Carly Fiorina during a conference call with analysts Thursday morning.

But HP also blamed its disappointing third-quarter results on company-specific problems in its enterprise servers and storage unit, which it said overshadowed good results in its personal computers, printers, software, imaging and software divisions.

It said it had made immediate management changes to address the problems, although it did not detail the changes during the call. HP said the problems revolved around changing to a new order-processing and supply-chain system that proved harder and more expensive than expected, difficulties with its European business and storage-business sales that were significantly below plan.

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The company said it is putting a new focus on improving profit margins in servers and storage, which would return the division to profitability in the fourth quarter. It lost about $208 million in the third quarter.

The company's revenue rose 9 percent to $18.9 billion, which also missed the First Call forecast of $19.0 billion. Without the changes in currency exchange rates, revenue would have been up only 5 percent.

The company issued fourth-quarter revenue guidance of $21.0 billion to $21.5 billion, roughly in line with the First Call forecast of $21.3 billion, with a range of estimates from $20.9 billion to $21.6 billion.

During the conference call, an analyst questioned HP executives about why the new fourth-quarter earnings guidance was so far below forecasts when revenue guidance was roughly in line with expectations.

"This continues to be a challenging and somewhat unpredictable environment," said Fiorina. "Given our miss, we think it's prudent to be somewhat cautious."

Cisco was similarly cautious Tuesday. And there's a good chance that HP rival Dell, which will report its latest results after the bell Thursday, will also give a reserved outlook for the remainder of the year.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.