HP Races Past Targets But Plans More Job Cuts

Hewlett-Packard (NYSE: HPQ) turned in an impressive second quarter, beating targets for revenue and profits, but said it will continue aggressively cutting costs in the wake of its merger with Compaq by laying off another 3,500 workers by the end of this year.

HP said revenue totaled US$18 billion in the quarter ended April 30th, up from $17.9 billion in the first quarter and a 69 percent increase year-over-year. Net income rose to $659 million, up from $252 million the year before. Numbers from 2002 reflect HP results only, since the Compaq merger did not close until early May of that year.

Cutting Continues

The new job cuts will help complete the total of 18,000 planned when the merger cleared its final hurdles last year.

HP CEO Carly Fiorina said the reductions will be more than offset by 4,000 new hires, reflecting a shifting of resources at the tech giant. Most of the new workers will be added to the services and printer units, while others will be in overseas locations, such as India.

Fiorina also said the company sees no signs that technology spending has begun to rebound in any noticeable manner. However, she added, HP remains on track to meet estimates for the rest of the year, and some $3.5 billion in ongoing cost savings realized through the merger has cleared the way for the first company-wide pay increase in two years.

"We're focused on winning and growing now," she said in a conference call, adding that the most recent quarter was "our strongest operating performance since the merger."

All Eyes

Palo Alto, California-based HP has had its results under a microscope since it closed its marriage with Compaq last May, with each quarterly report scrutinized for signs the merger is working as billed.

"They're hitting or even surpassing a lot of the targets," Forrester analyst Rob Enderle told the E-Commerce Times. "The enterprise business has to remain a concern, however, since that was what was driving the merger in many people's eyes."

The company's enterprise sales unit recorded some growth, with the biggest gains in server and storage units, but also posted an operating loss in the quarter -- a potentially problematic sign for the company if tech spending remains flat as predicted.

Mixed Bag

HP has made no secret of the fact that it intends to push hard to improve its enterprise showing. The company rolled out about 70 new products in the quarter and revamped its internal organization in a bid to better serve the market.

In contrast to the enterprise division, the company's printing and services units performed well, with service revenue climbing 2 percent over the first quarter to $3 billion. Printing revenue was $5.5 billion, a 13 percent increase from the second quarter of 2002.

Although Dell (Nasdaq: DELL) regained the PC sales crown from HP in the first quarter, Fiorina said she expects HP eventually will take it back. "I expect the company in first place will change again," she noted.