HP revenue drops in tough climate

It plans to lay off about 6,000 workers worldwide

Computer industry bellwether Hewlett-Packard Co. reported a 3% 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% of its work force, or about 6,000 employees, HP Chief Financial Officer Cathie Lesjak said during a conference call with financial analysts 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 70 cents 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% to 5%. Last quarter, HP had said it expected revenue to be down between 2% and 5%.

HP Chairman and CEO Mark Hurd said it's 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 today. "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%, 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%; midrange server revenue dropped 21%; and sales of the company's industry standard servers and business critical systems were both down 29%.

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

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% and those of HP's top executives by 15%. The company's remaining executives saw a 10% wage cut while all other salaries were slashed by 5%.

Other than the EDS reductions, however, HP has avoided widespread layoffs. In a Feb. 18 memo to employees, Hurd said, "I don't believe a major work force reduction is the best thing for HP at this time."

Copyright © 2009 IDG Communications, Inc.

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