The Telegraph
Since 1st March, 1999
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H-P suffers $ 2bn third-quarter loss

San Francisco, Aug. 28: Hewlett-Packard Co. said Tuesday it lost $ 2.02 billion in the quarter since buying Compaq Computer Corp. in the largest technology merger in history, as sales fell in most of its product lines.

H-P’s loss amounted to 67 cents a share in its fiscal third quarter. The “pro forma” per-share profit—excluding $ 2.4 billion in merger costs, investment losses, litigation expenses and other write-downs—came to 14 cents, matching analyst predictions.

“We’ve kept our eye on the ball,” CEO Carly Fiorina told investors and analysts on a conference call. “We did well.”

Revenue in the three months ended July 31 fell from $ 18.6 billion at the two companies a year earlier, to $ 16.5 billion together in the fiscal third quarter, shy of the $ 16.7 billion consensus sales estimates from Wall Street.

Fiorina and other executives said H-P was meeting a variety of internal goals set before the controversial acquisition of Compaq, which narrowly survived a shareholder vote.

They said the sales shortfall resulted from continued weakness in technology spending, rather than execution problems or excessive optimism about the merits of the Compaq acquisition.

Delayed purchases and economic conditions, especially overseas, “puts the information technology sector under enormous pressure,” Fiorina said. “The shift in buying behavior will continue.”

H-P stock fell 64 cents to $ 14.21 in regular NYSE trading, then regained most of that ground following the earnings report, moving to $ 14.70 in after-hours activity.

The Palo Alto-based company said it was on track to meet earlier sales and profit forecasts for the year’s remaining quarter, and it said profit margins would improve as it chops more costs. The executives declined to give a sales forecast for the next fiscal year.

Sales of printing systems, the most profitable piece of the company, increased 10 per cent to $ 4.7 billion.

But the rest of the quarter’s results were grim.

Sales dropped 19 per cent from a year earlier at the H-P division handling personal computers for consumers and business, to $ 4.8 billion.

Revenue from big computer systems sold to large business enterprises fell 22 per cent, to $ 3.8 billion.

The two segments lost more than $ 600 million combined. And technology services, touted before as a key rationale for the merger, fell 7 per cent to $ 3 billion.

“The down-side surprise was the enterprise computing,” said Merrill Lynch analyst Steven Milunovich.

“The revenue number was a little light, which suggests that even since June, the environment has deteriorated a bit,” Milunovich said. He doesn’t own any H-P shares and recommends the stock. Merrill Lynch provides investment banking services to HP.

H-P president Michael Capellas called the big-computer division’s $ 422 million operating loss “unacceptable” and promised to speed up cost-cutting moves, including layoffs. The company has already eliminated 4,740 jobs and plans to cut a total of 15,000 by the end of next fiscal year.

“We know we have a lot of work to do, particularly in our PC and business enterprise systems,” Capellas said. He predicted the personal computer division would return to profitability in first half of next fiscal year.

The big-computer unit suffered the most from overlapping product lines between H-P and Compaq, but other parts of H-P also are under attack by competitors.

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