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HP Q4 revenue up, profits fall on layoff charges

It raised the number of employees let go in a restructuring plan to 15,300

By Tom Krazit
November 17, 2005 12:00 PM ET

Hewlett-Packard Co. today reported that its fourth-quarter revenue rose on strong growth in PC and server shipments, but it said restructuring charges and a decline in revenue from consumer printers hurt its profitability for the quarter.

"[The results] reflect good execution across our businesses, with solid revenue growth, good cost control and margin expansion in many key areas," said CEO Mark Hurd, on a conference call with reporters after the release of HP's earnings.

Revenue was $22.9 billion, up 7% from revenue of $21.4 billion in last year's fourth quarter and ahead of analyst estimates of $22.8 billion compiled by Thomson First Call. Revenue from storage and servers was up 10%, while revenue from the company's PC group was up 9%.

HP's fourth-quarter net income, under generally accepted accounting principles (GAAP), was $416 million, down 62% from net income of $1.1 billion in the same period last year. The net income posted reflects $1.1 billion in charges related to a broad restructuring program put in place by HP management in July and other factors. Excluding those charges, net income for the quarter, which ended Oct. 31, was $1.5 billion. That compares with net income, excluding charges, of $1.2 billion in the same period last year.

HP has increased the number of layoffs it announced as part of its restructuring plan to 15,300, said Bob Wayman, HP's chief financial officer. The company had originally expected to cut 14,500 jobs but saw the need for additional layoffs as it proceeded with its plan.

The majority of the cost savings that HP cited as the catalyst for the layoffs won't kick in until the company's next fiscal year, as all of the affected employees leave the company, Wayman said.

On the product side, the Enterprise Storage and Servers (ESS) group was led by a 12% increase in revenue generated by HP's servers based on Intel Corp.'s Xeon processors and Advanced Micro Devices Inc.'s Opteron processors. Blade server revenue was up 65%, while revenue from HP's Integrity servers was up 70%, Hurd said. The Palo Alto, Calif.-based company's storage business also improved, posting 17% growth in revenue.

Overall, the ESS group recorded $4.5 billion in revenue and an operating profit of $405 million. The profitability of the group has swayed back and forth in recent years, but for this quarter, operating profit was up from $100 million last year.

HP's PC group was led by the performance of its notebook products, which produced a 23% improvement in revenue over the past year. Desktop revenue increased by only 1%. The entire group recorded

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