May 20, 2009

HP confirms jobs cuts as server sales slump

Company plans to lay off about 6,000 worldwide

By Robert McMillan

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Computer industry bellwether Hewlett-Packard reported a 3 per cent drop in revenue as its major lines of business continued to be hammered by the global recession.

The company also became the latest technology vendor to resort to layoffs in order to cut costs. Over the next 12 months, HP will lay off about 2 per cent of its work force, or about 6,000 employees, HP Chief Financial Officer Cathie Lesjak said during a conference call with financial analysts on Tuesday. HP employs 321,000 worldwide.

The company remained profitable, however, posting results that were in line with analyst expectations. HP recorded a profit of $1.7 billion on sales of $27.4 billion. Earnings per share were $0.70 for its second fiscal quarter, ended April 30.

In a hopeful sign, the company reaffirmed its earlier guidance for fiscal 2009, saying it expected to earn between $3.76 and $3.88 per share for the year. That's better than analysts had been expecting.

In a Thomson Financial survey of 26 financial analysts, the consensus estimate was $3.71 for the year. However, the company was pessimistic on revenue for the year, saying it would be down by 4 per cent to 5 per cent. Last quarter, HP had said it expected revenue to be down between 2 per cent and 5 per cent.

HP Chairman and CEO Mark Hurd said it was unlikely that corporate IT purchasing patterns would change in fiscal 2009. "We have customers that tell me, 'We're just delaying as long as we can until we have to buy,'" he said during a conference call with financial analysts Tuesday.

"CIOs have been given marching orders that say, 'Take that infrastructure, keep the infrastructure running... be very particular about new projects you start, and if you can avoid starting that project, avoid starting it.'"

The quarter's revenue drop would have been much worse had HP not seen its services sales nearly double, year-over-year, thanks to the company's Aug. 26 acquisition of Electronic Data Services (EDS). Services revenue was up 99 percent, totaling $8.5 billion for the quarter.

HP is in the process of cutting 24,600 EDS jobs as it absorbs the computer services giant. The company's EDS integration is ahead of schedule, Hurd said, with "roughly half" of those positions now eliminated.

Everywhere else, however, the financial numbers reflected the global slowdown: storage revenue was down 22 percent; midrange server revenue dropped 21 per cent; and sales of the company's industry standard servers and business critical systems were both down 29 percent.

Sales of desktop PCs dropped 24 percent, notebooks were down 13 per cent and revenue in the company's printer division was down 23 per cent.

The company did see improvements in some areas. "We saw improvement in China, and it was material. We saw improvement in U.S. consumer that I wouldn't say was as material," Hurd said. "I just think we're going to need another quarter of data in order to make a meaningful statement about any upturn or anything like that."

HP posted disappointing earnings last quarter as well, as revenue dropped in all of its business units. Hurd responded by imposing wage cuts across the board at HP. He cut his own salary by 20 per cent and those of HP's top executives by 15 per cent.

The company's remaining executives saw a 10 percent wage cut while all other salaries were slashed by 5 per cent.

HP had been hoping that these wage cuts would help it avoid layoffs. In an 18 February memo to employees, Hurd said, "I don't believe a major workforce reduction is the best thing for HP at this time."

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