For educational purposes only

Hewlett-Packard Joins Layoff Craze

Company Lowers Earnings Forecast Will Cut as Many as 3,000 Jobs Overseas Earnings to Help Bottom Line

(SAN JOSE, Calif. ) (AP) High-tech bellwether Hewlett-Packard Co. lowered its earnings forecasts yet again and will cut as many as 3,000 management jobs, or about 3.5 percent of its work force, to deal with a worldwide sales slowdown.

When computer makers were fretting during the holiday season about weak sales in the United States, HP's president, CEO and chairwoman, Carly Fiorina, said HP probably would fare better because of its international presence. Nearly 56 percent of HP's revenue comes from overseas.

However, Fiorina told analysts before the stock market opened Wednesday that the dramatic downturn in sales "has spread to other regions of the world, particularly Europe, and to a lesser degree Asia Pacific."

While PC buying was strong in Europe in 2000, "those gains evaporated in the first quarter," she said. "We're clearly feeling this sudden shift in consumer (information-technology) buying sentiment."

HP's belt-tightening may have had an impact -- despite the gloomy forecast, HP shares rose $2.65, more than 9 percent, to close at $31.90, joining a broad rally on the New York Stock Exchange.

Palo Alto-based HP expects revenue in the second quarter, which ends April 30, to fall 2 to 4 percent from both the previous quarter and the comparable period of 2000. HP expects earnings per share between 13 cents and 17 cents.

That estimate includes approximately $150 million in one-time writedowns for excess inventory and capacity in printing and handheld computers.

Analysts surveyed by Thomson Financial/First Call had been expecting earnings of 35 cents a share for the quarter -- although those estimates typically exclude the impact of one-time writedowns.

The consensus estimate had been 40 cents a share before HP warned in February that it was being hurt by the worsening economy.

Fiorina said those projections were based on the assumption there would be "no further deterioration in the U.S. economy" and "no significant slowdown internationally."

HP's poor outlook had previously led the company to defer pay raises and bonuses, but Fiorina said that measure will not continue.

Instead, the company will try other ways to reduce expenses, tightening control over discretionary spending and eliminating 3,000 of its 14,000 management positions.

That follows HP's move in January to cut 1,700 marketing positions, a decision that got a lot of attention because the 62-year-old Silicon Valley institution has traditionally avoided layoffs.

The newly lowered outlook marks another difficult moment for Fiorina, who has been criticized for giving Wall Street high targets and then having to lower them. Last fall she repeatedly stuck to a forecast that HP's sales would rise 15 to 17 percent this year -- in part because of expectations for strong overseas growth -- before acknowledging in February that double-digit growth was unlikely.

With sales of HP's mid-range to high-end ink jet printers sluggish, the company will cancel plans to expand production lines for those products and concentrate instead on the low-end market. HP will write off the $50 million cost of that move, which Fiorina said was necessary to preserve HP's lead in the printer market.

"What they have at stake here is ultimately their crown jewels," said Richard Chu, an analyst with SG Cowen Securities.

Also, sales of HP's high-end Superdome servers have been hurt in the slowing economy, as companies stretch out decisions on buying big-ticket items.

The overall situation is expected to improve somewhat in the third quarter, with revenue flat from the previous year.

"We are talking about this quarter being a bottom," Fiorina said.

Merrill Lynch analyst Tom Kraemer said that assessment "does not make sense" since Fiorina also pointed out that visibility for the rest of the year remains poor.

http://cbsnewyork.com/finance/StoryFolder/story_1115945348_html/index_html

-- K (infosurf@yahoo.com), April 20, 2001