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H-P 3Q profit falls on demand slump

"We are operating in a very tough environment. ... We don't see any signs of improvement in the market before 2002." Carly Fiorina, chief executive officer of Hewlett-Packard PHOTO: AP

Hewlett-Packard Co said fiscal third-quarter earnings fell as the second-largest computer maker coped with sluggish demand for its systems, software and printers.

Net income in the period ended July 31 fell 89 percent to US$111 million, or US$0.06 a share, from US$1.05 billion, or US$0.51, a year earlier. Sales dropped 14 percent to US$10.1 billion from US$11.8 billion.

Hewlett-Packard last month reduced its revenue target, saying demand for consumer products slumped as economic growth wanes. A slowdown that began in the US late last year has expanded to other regions, chief executive Carly Fiorina has said. The company said revenue will rise in the current quarter from the previous period as sales pick up ahead of the holiday season.

"For the first time in about three quarters, they're actually talking about some positive things," said David Katz, chief investment officer of Hewlett-Packard shareholder Matrix Asset Advisors Inc, in an interview with Bloomberg Television.

The company's shares rose as high as US$24.80 after the report.

They had gained US$0.03 to US$24.13 before the release and earlier today touched US$23.10, their lowest price since November 1998. The stock has lost 60 percent of its value in the past year.

Excluding acquisition-related costs and a loss from the sale of a business, the company said profit would have been US$0.11 a share. On that basis, which isn't in accordance with generally accepted accounting principles, analysts polled by Thomson Financial/First Call on average expected profit of US$0.04.

The company said it will take a charge of US$250 million to US$300 million in the current quarter related to the elimination of about 6,000 jobs by the end of October.

Consumers have put off purchases of printers and computers this year. Retail unit sales of desktop computers have fallen almost 20 percent in the first half from a year earlier, according to researcher NPD Intelect.

Hewlett-Packard's consumer sales dropped 21 percent during the quarter from a year earlier. Revenue fell in every region worldwide, Fiorina said. Sales to businesses declined 11 percent.

"We are operating in a very tough environment," Fiorina said on a conference call. "We don't see any signs of improvement in the market before 2002." The Palo Alto, California-based company expects a seasonal rise in sales this quarter from the third period. Still, the company said revenue may fall more than 14 percent from the year- earlier quarter, and Fiorina doesn't expect the economy to recover in the next few months.

Analysts on average expect profit of US$0.15 a share on sales of US$11.1 billion in the fiscal fourth quarter. A year earlier, Hewlett-Packard earned US$0.41 on sales of US$13.3 billion.

Fiorina has come under fire this year as she revised her sales targets several times. After missing earnings projections by US$0.10 a share in last year's fourth quarter, she's had to lower her estimates in each of the three periods since then.

That's stained her credibility, and investors said she may still be too positive.

"She's too optimistic," said Jerry Dodson, president of Parnassus Investments, which owns 75,000 Hewlett-Packard shares.

"I like the woman a lot, but she doesn't learn her lesson." He expects fiscal fourth-quarter sales to fall 6 percent to 7 percent from the prior period.

Rival Dell Computer Corp, which Dodson says is beating Hewlett-Packard in server and personal computer sales, is predicting a 5 percent decline.

Sales of printers and supplies declined 10 percent in the recent quarter. Computer-systems sales fell 22 percent, and software revenue dropped 16 percent.

Hewlett-Packard is counting on new products -- especially in servers that run networks and Web sites -- to pull it out of the slump. Demand for its latest high-end server, dubbed Superdome, rose for the second straight period, Fiorina said. She cited contract wins at Best Buy Co and the American Stock Exchange.

The company reiterated plans to introduce servers with a new chip later this year.

Another bright spot was revenue from computer-network management, or outsourcing, which climbed 20 percent. Consulting revenue rose 9 percent.
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