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Tags: HP | Hewlett | layoffs | forecast

HP Says Layoffs to Total 27,000; Profit Tops Forecast

Wednesday, 23 May 2012 04:40 PM EDT

Hewlett-Packard Co. shares rose after the world’s largest personal-computer maker announced plans to slice its workforce by 27,000, or about 8 percent, and reported better-than-forecast fiscal second-quarter sales and profit.

Profit before some costs in the quarter ended in April was 98 cents a share, the company said in a statement Wednesday. That compared with analysts’ 91-cent average estimate, according to data compiled by Bloomberg. Sales were $30.7 billion, topping the average projection of $29.9 billion. The shares rose as much as 12 percent.

Hewlett-Packard’s forecast for third-quarter profit was less than analysts predicted, as the company grapples with slower demand for printers, services and data-center equipment. The job cuts, which will come through firings and early retirement offers by October 2014, will generate annual savings of as much as $3.5 billion. Many of the employee cuts will come in the ailing enterprise services group, which manages data centers and provides information-technology consulting.

“IT spending is slowing,” said Brian White, an analyst at Topeka Capital Markets in New York, who recommends holding the shares. Savings from the job cuts could counter some of the other challenges facing Hewlett-Packard, he said. “If you go through the metrics, they’re just very inefficient.”

Hewlett-Packard shares rose as high as $23.52 after the announcements. They had fallen 3.2 percent to $21.08 at Wednesday’s close in New York, and have declined 18 percent this year.

Whitman’s Turnaround

Meg Whitman, chief executive officer since September, is struggling with a turnaround effort aimed at reducing costs and reversing a sales slump that led to the ouster of her predecessor, Leo Apotheker. She has said the company needs to make its products and services more competitive and spend more on research and product development.

For the fiscal third quarter, which ends in July, profit excluding certain items will be 94 cents to 97 cents a share, Palo Alto, California-based Hewlett-Packard said in the statement. That compares with the $1.02 average of analyst estimates compiled by Bloomberg. The company didn’t provide a third-quarter sales forecast. Analysts expect a 3.1 percent decline to $30.3 billion.

For the fiscal year, profit will be $4.05 to $4.10 a share, higher than analysts’ projections for $4.02.

‘Every Business Unit’

The enterprise services group will take a larger number of job cuts than other groups, said Hewlett-Packard Chief Financial Officer Cathie Lesjak, though she declined to specify the number.

“This wasn’t a peanut-butter spread,” she said in an interview today. Last week, people familiar with the matter said the company plans to reduce its services workforce by 10,000 to 15,000 people. No unit of the company was spared cuts, Lesjak said.

“Every business unit, every function and every region has a role to play here,” she said. The company raised its profit forecast for the year because it will begin to see cost savings in the fiscal fourth quarter, Lesjak said.

The job cuts will pare Hewlett-Packard’s workforce of 349,600. The company’s enterprise services business expanded when Hewlett-Packard bought Electronic Data Systems Corp. for $13.2 billion in 2008.

Competing With IBM

The unit competes with International Business Machines Corp., Infosys Ltd. and others in the market for managing companies’ IT operations. Yet the growth in the services market has shifted away from the labor-intensive outsourcing contracts that made up most of EDS’s sales, the company has said.

Customers want help modernizing business applications, retooling data centers for Internet-delivered cloud-computing software, and analyzing reams of data, and Hewlett-Packard doesn’t have enough experts in those areas to win deals, former CEO Apotheker and other executives have said.

Still, the job cuts could take years to improve profits, Katy Huberty, an analyst at Morgan Stanley in New York, said in a May 17 research note.

“We view any restructuring announcement as a positive move, but one that will take several years to sustainably improve margins, EPS and free cash flow,” she said.

Boosting R&D

Whitman has said the company also needs to boost R&D spending, which was $3.25 billion in the last fiscal year. Brian Marshall, an analyst at ISI Group, said in a research note last month the company ought to spend $4 billion to $5 billion on R&D to compete with IBM and Cisco Systems Inc. in developing new products for corporate data centers.

In the PC market, Hewlett-Packard is fighting Apple Inc.’s rising market share for its Mac computers and iPad tablet. Hewlett-Packard’s report follows No. 3 PC maker Dell Inc.’s forecast yesterday for lower-than-projected sales for the quarter ending in July, as demand for smartphones and tablet computers erodes PC sales.

Tablet sales are cutting into those of traditional laptops: 118.9 million tablet devices will be sold in 2012, almost doubling from 2011, according to market-research firm Gartner Inc., with Apple accounting for 61.4 percent of the market. PC shipments worldwide will rise 4.4 percent to 368 million this year, Gartner estimates.

© Copyright 2023 Bloomberg News. All rights reserved.

Wednesday, 23 May 2012 04:40 PM
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