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News > Technology
HP's net income sinks
May 16, 2001: 6:22 p.m. ET

Computer maker sees bottom line fall by more than half as sales slip
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NEW YORK (CNNfn) - Hewlett-Packard Co. on Wednesday reported a fiscal second-quarter profit that was down sharply from the same period a year earlier on sales that fell 3 percent.

And executives at HP in Palo Alto, Calif., said they are confident they can meet Wall Street's current earnings expectations for the current quarter but said sales could drop as the company faces continued weakness and uncertainty in the U.S. and global economy.

After the close of trading HP said it earned $319 million, or 15 cents per share, during the quarter ended April 30. That's down 66 percent from the $935 million, or 39 cents per share it reported during the same quarter a year ago.

At $11.6 billion, HP's revenue for the quarter fell 3 percent from the $12 billion it logged during the year-ago quarter, and 2.5 percent from the $11.9 billion in sales it recorded during the fiscal first-quarter.

Excluding extraordinary charges, the company said its pro forma earnings during the second-quarter amounted to 18 cents per share, compared with 43 cents per share during the same quarter a year ago.

That exceeded the lowered guidance executives provided on April 18 when they said they were aiming for pro forma earnings ranging between 13 cents and 17 cents per share. Prior to that, the Street had been expecting the company to report a profit nearer 35 cents per share.

The company also said it has been taking steps to pare back its costs, including eliminating 3,000 management positions and requiring other employees to take days off.

HP also recorded a $155 million inventory and capacity write-down in the fiscal second-quarter associated with some consumer products, which is higher than the $150 million inventory write-down executives had said they expected.

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Shares of HP (HWP: Research, Estimates) rose $1.34 to $26.74 Wednesday ahead of the report. They rose $1.26 to $28.00 in after-hours trading following the release.

HP is a leading PC supplier but also makes network servers, digital imaging devices, printers and related products. The company also provides information technology (IT) services. It has abandoned discussions it was in to buy the IT consulting unit of PricewaterhouseCoopers, but it continues to push its services offering, particularly in e-commerce.

The bulk of HP's revenue is derived from its computing and imaging businesses.

Economy and execution weigh on results

In a teleconference with analysts Wednesday evening, Carly Fiorina, HP's chairman and chief executive, said the company's quarterly results were hurt by a combination of economic weakness and internal problems.

As have most computer and electronics outfits, HP has been stung by weakening demand in the face of slowing and uncertain economic conditions, particularly among consumers and businesses in the U.S and Europe. Additionally, the company's newest high-end network servers, dubbed Superdome, have not been selling as quickly as executives had anticipated.

"Our results continue to be impacted by significant macro-economic challenges and particular weakness in consumer and capital spending in the U.S. and Europe," Fiorina said.

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Carly Fiorina
Chairman and CEO, Hewlett-Packard (Courtesy/HP)
"But we can't pin all of our issues on the economy," she added. "We've previously acknowledged the work we're doing in our enterprise business to reinvigorate channel and go-to-market programs. The systemic, structural changes we are making in these areas are not quick fixes, but we're making steady improvement day by day."

She said the lead time to booking revenue from Superdome shipments is averaging 60 to 90 days, and so far the company has recognized revenue on only about 60 percent of all its Superdome shipments, which she said are now shipping in volume.

During the quarter, HP said its total Unix server revenue declined 13 percent, but at the same time, its high-end Unix business rose 3 percent.

Revenue from the company's entire computing systems business, which includes servers, PCs and notebooks, declined 7 percent, HP said.

Consumer PC sales declined 15 percent, which the company attributed to weak demand and pricing pressure in North America. The top-tier PC vendors, including Dell, Compaq, HP and Gateway, have been locked in a fierce price war in recent months amid flagging sales of new systems.

At the same time, the company said notebook computer sales in the fiscal second-quarter rose 18 percent.

HP said revenue in its printing and imaging business, which includes laser and inkjet printers, imaging devices and associated supplies, declined 3 percent during the quarter. The company said the supplies business achieved strong revenue growth rates in every region except Europe.

Finally, HP said revenue from its IT services business rose 9 percent, with its consulting business achieving 33 percent revenue growth.

Looking ahead, Fiorina characterized the Street's current consensus estimate of 23 cents per share for the fiscal third-quarter ending in July as "reasonable."

"However, given continuing deterioration in key economic indicators and increasing global uncertainty, we think broadening the revenue range slightly ... is prudent," Fiorina added. She said HP is aiming for fiscal third-quarter revenue that is either equal to, or as much as 5 percent below the $11.6 billion it reported for the fiscal second quarter. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.