Hewlett-Packard cuts 6,000 more jobs

The Associated Press
Friday July 27, 2001

SAN JOSE — Computer and printer giant Hewlett-Packard Co. lowered its revenue forecasts again Thursday and said it is slashing an additional 6,000 jobs, more than 6 percent of its work force, because consumer spending worldwide on technology has only gotten worse. 

The job cuts come on top of 4,700 already announced this year and follow several warnings that results would be worse than previously thought. The news sent HP stock down 6.5 percent. 

“Economies around the world continue to weaken and our consumer business is being hit particularly hard,” HP’s chairwoman, president and chief executive, Carly Fiorina, said on a conference call with financial analysts before the stock market opened. 

HP now expects revenue in the third quarter, which ends July 31, to decline 14 percent to 16 percent from last year. That would translate into revenue between $9.9 billion and $10.1 billion. Analysts had been expecting $11.1 billion, according to Thomson Financial/First Call. 

Sales to consumers are expected to fall 24 percent, she said. And the sales the company can make are becoming less profitable because of a price war among makers of computers and printers. HP’s gross margins are expected to be only about 25 percent. “I do not expect a second-half recovery in 2001,” Fiorina said. “I have not expected that for some time.” 

The Palo Alto-based company didn’t address its third-quarter earnings estimates; analysts surveyed by Thomson Financial/First Call had been expecting 19 cents per share, down from 49 cents a year ago. 

HP shares fell $1.68 to $24 in heavy trading Thursday on the New York Stock Exchange. 

One big problem is that HP generates most of its profits from selling high-margin ink cartridges for its printers. So weak sales of printers now can translate into reduced profits down the road. 

Merrill Lynch analyst Thomas Kraemer said he expects analysts’ estimates for HP will be lowered for not only this quarter, but the rest of this year and 2002. He also said HP’s woes could increase as two key rivals, IBM Corp. and Sun Microsystems Inc., launch high-end products around the end of this quarter. 

“That’s not going to be pretty,” he said. 

A.G. Edwards & Sons analyst Shebly Seyrafi, who lowered his third-quarter earnings estimate to 4 cents a share, said many of HP’s troubles can be traced to external conditions. But he also believes Fiorina took on HP’s massive reorganization plan, in which 83 business units were combined into four, much too quickly for a company that large. 

“That was a little bit too much, too soon,” he said. “It seems to me that was the wrong move and they’re paying the price for it.” 

While HP has traditionally avoided layoffs in its 63-year history, it’s not the only computer maker cutting jobs because of the slumping PC market. Compaq Computer Corp. is laying off 8,500 people, and Dell Computer Corp. is cutting 5,000 jobs. 

HP’s layoffs, which will start at the beginning of August, are expected to save the company $500 million annually. Fiorina would not specify the restructuring charge the company would need to take as it pays severance to employees let go. 

Though HP has eliminated 4,700 positions recently, many of the affected employees have found other jobs at HP, and the company also has been hiring in key areas such as consulting. Consequently, the company’s work force has actually grown from 90,000 at the beginning of the year to nearly 93,000 now. With the new cuts, the work force will drop to about 86,000, or 4.4 percent below what it was at the beginning of the year, spokesman Dave Berman said. 

More employees might also be lost as the company moves to outsource more of its non-manufacturing operations, such as some accounting tasks. 

HP said it has taken additional short-term steps, such as a voluntary payroll saving program that is expected to save about $130 million for the rest of the year. More than 80,000 employees offered to take pay cuts or use up more vacation days in an effort to trim costs. 


On the Net: