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HP warns, sets job cuts
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July 26, 2001: 12:55 p.m. ET
No. 2 office products maker feeling the bite of spending slowdown
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NEW YORK (CNNfn) - Hewlett-Packard Co.'s revenue in the current quarter will miss expectations and the company will cut 6,000 jobs, HP said Thursday, as a lingering economic slowdown continues to erode the computer and printer maker's profit.
The No. 2 U.S. office-products maker said revenue will fall 14 to 16 percent during the fiscal third quarter ending July 31, compared with the year-earlier period, resulting in quarterly revenue of about $9.9 billion to $10.2 billion. Wall Street analysts expected revenue of $11.1 billion, according to earnings tracker First Call.
The Palo Alto, Cal.-based company also said it plans to cut about 6,000 jobs worldwide, about 6 percent of its work force, in addition to about 1,000 cuts previously announced. Most of the cuts will be made in the fourth quarter, with affected workers to be notified at the beginning of August.
"Economies around the world continue to weaken as we move through the quarter," HP CEO Carly Fiorina said. "These decisions are based upon a series of assessments we've been doing over the past several months," she said. "This is not a knee-jerk reaction."
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 CNNfn's Chris Huntington takes a closer look at Hewlett's warning. |
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Shares of HP (HWP: down $1.74 to $23.94, Research, Estimates), a component of the Dow Jones industrial average, fell more than 8 percent at midday Thursday following the warning.
HP, which is second only to IBM (IBM: down $1.60 to $103.29, Research, Estimates) among office-products makers in annual revenue, has suffered along with its competitors from an extended economic slowdown. Falling consumer demand has led companies to cut production and freeze spending on new technology -- including HP's products.
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HP's announcement comes less than a week after research firms reported personal computer sales fell in the second quarter from a year ago, the first such decline in at least 15 years. Of all computer makers, only Dell Computer (DELL: down $1.07 to $26.94, Research, Estimates) posted sales gains. Everybody else, including HP, Compaq Computer (CPQ: down $0.15 to $13.97, Research, Estimates) and IBM, fell.
In fact, HP said its consumer products business will suffer the most this quarter, with revenue expected to fall 24 percent. While revenue from consulting and outsourcing will grow, the problem areas will drag HP's profit margin down.
"This is not a terrible surprise in light of the information technology space," A.G. Edwards analyst Shebly Serafy said. "The personal-computer and printer sectors are going through a lot of competition right now, and international markets are hurting all these companies."
Is Fiorina to blame?
The size of the charge to cover HP's job cuts will not by disclosed until third-quarter earnings are released next month, but the company estimates they should result in about $500 million in annual savings.
Fiorina said HP is considering other measures, including outsourcing some of its administrative processes and unloading businesses.
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Carly Fiorina | |
Under the stewardship of Fiorina, who took the reigns as CEO in July 1999, HP has streamlined its organizational structure, trimming the number of divisions to 16 from 83. It also has shifted its sales strategy, selling directly to roughly 1,000 key customers and leaving other customers to re-sellers and other distributors.
Some analysts have questioned these moves and think they may have contributed to HP's hard times.
"You can't just ignore management," Serafy said. "They could have taken better actions to ignore this precipitous decline."
Specifically, Serafy questioned HP's decision to reorganize so quickly after Fiorina became CEO. He also pointed out distribution problems that have left HP direct marketers competing at times with other distributors.
Still, though some analysts want to make Fiorina the scapegoat for HP's woes, she certainly wasn't responsible for the economic slowdown and corresponding collapse of capital spending that's hurt HP and its competitors.
"I'm not so sure that, if you replace Carly with somebody else, you'll solve the problem," Serafy said.
An economic recovery likely would be the best tonic for HP's woes, but Fiorina is pessimistic that one will come this year.
"We have not expected that for some time," she said. "I don't think we can call when a recovery will occur." 
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Hewlett-Packard
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