Hewlett-Packard Co will fire 6,000 employees, or 6.5 percent of its workforce, and said sales this quarter will miss forecasts as consumer demand withers for personal computers and printers.
The second-biggest computer maker, which has about 93,000 employees, said the firings will take place worldwide, with most occurring in early August.
PHOTO: BLOOMBERG
The company's shares fell US$1.68, or 6.5 percent, to US$24, their lowest price since November 1998.
Hewlett-Packard said sales in the third quarter ending Tuesday will drop 14 percent to 16 percent from a year earlier as home users and businesses pare spending on computers, software and printers. Chief Executive Carly Fiorina in May predicted a decline of as much as 5 percent. She's already trimmed 1,000 workers this year and asked employees to accept reduced pay.
"I don't know that their crystal ball is any clearer than the rest of ours in determining when a pickup will happen," said Bruce Raabe, chief investment officer at Collins & Co, which manages US$500 million in Larkspur, California, and owns Hewlett-Packard shares. "This is a good time to be lean and mean."
The Palo Alto, California-based company said sales of consumer products will fall 24 percent. The back-to-school season, traditionally a good time for computer sales, won't be as strong as expected, Fiorina said.
"The greatest source of weakness is consumer spending," she said on a conference call. "That's true around the world."
Demand for PCs and printers hasn't rebounded after a dismal holiday season last year, as consumers and corporations worry about the economy and put off purchases.
PC shipments in the calendar second quarter dropped from a year ago for the first time since 1986, researcher Dataquest Inc said last week.
Hewlett-Packard had sales of US$11.8 billion in last year's third quarter and was expected to have revenue of US$11.1 billion in the current period, the average estimate in a First Call/Thomson Financial survey of analysts.
Fiorina didn't say whether profit would meet forecasts of US$0.19 a share, the average in a First Call poll.
In June, she told analysts she was "more cautious" about meeting the average earnings forecast, which at the time was 23 cents.
Rival Compaq Computer Corp said yesterday that third-quarter sales will fall to US$8 billion to US$8.4 billion, while analysts expected US$9.3 billion.
"Businesses are not spending on technology, consumers are not spending on PCs or printers and the global slowdown is spreading," David Katz, chief investment officer at Hewlett-Packard shareholder Matrix Asset Advisors Inc, said.
"That's a very short-term picture. Longer term, H-P is a leading player."
The total sales decline includes a 3 percent drop from converting foreign currencies to US dollars. Worldwide outsourcing revenue will rise 20 percent, and consulting sales will rise 9 percent.
Today's forecast marks the third consecutive period that Fiorina has been forced to lower her targets mid-quarter.
In the fourth quarter ended last October, the company missed profit forecasts by US$0.10 a share.
The company's shares have declined 24 percent this year.
Lexmark International Inc on Monday said second-half earnings will miss expectations, with third-quarter profit of US$0.50 to US$0.60 a share and fourth-quarter profit of US$0.70 to US$0.80 cents. Profit was expected to be US$0.68 in the third quarter and US$0.83 in the fourth quarter, according to First Call.
Hewlett-Packard, the biggest printer maker, is cutting prices on low-end printers. Fiorina said those reductions will continue.
"Pricing could get easily worse from here," Lexmark Chief Executive Paul Curlander said Monday. Inkjet printer prices dropped 15 percent from a year ago and laser printers declined 10 percent, he said.
Hewlett-Packard has said it won't lower prices on PCs, even amid drops at rivals like Dell Computer Corp meant to lure buyers and bolster sales during the slump in demand.
That's made it tougher for Hewlett-Packard. Its share of the PC market fell to 6.8 percent in the second quarter from 7.3 percent a year earlier.
Dell, Compaq and Gateway Inc all have fired thousands of workers this year as demand falls and economic growth slows down worldwide.
International Business Machines Corp, the biggest computer maker, is the only large PC company that hasn't cut jobs.
Hewlett-Packard in January said it would cut 2 percent of its marketing staff, and in June said it would eliminate 3,000 of its 14,000 management jobs.
Those moves resulted in 1,000 firings, with the rest of the workers moved into other jobs at the company.
The computer maker said it expects to save US$500 million a year from the reduction announced today.
Before this year, the company hadn't made significant job cuts since the early 1980s.
More then 80,000 workers signed up for voluntary pay cuts this quarter, and Hewlett-Packard said it will save US$130 million during the rest of the fiscal year as a result.
It's too soon to say when business will improve, Fiorina said. Computer-related companies such as Intel Corp have said demand will rebound in the next six months.
"I don't expect a recovery in the second half of 2001," Fiorina said.
"I don't think we can call when a recovery is going to occur, but it's not going to be a rapid hockey stick up and to the right."
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