By Anna Prior
Hewlett-Packard Co.'s turnaround lost some momentum in its
second fiscal quarter, with more job cuts and a dip in revenue
overshadowing higher profits.
The Silicon Valley giant said Thursday it would cut an
additional 11,000 to 16,000 jobs on top of 34,000 positions it
previously said would be eliminated as part of a multi-year
restructuring plan. At the midpoint of that range, the new cuts
would trim an additional 4% from H-P's workforce of about 317,500
employees.
H-P's results follow two quarters that had generally pleased
investors, as the company appeared to stabilize itself under Chief
Executive Meg Whitman after several years of turmoil.
The quarterly numbers were accidentally posted on H-P's website
ahead of schedule and before the close of regular trading
Thursday.
H-P shares, which had been trading higher earlier in the
session, dipped following the disclosure by more than 2% to $31.78
at 4 p.m. The stock slid more in after-hours trading, before
rebounding slightly.
Following the release of the financial results, H-P announced
leadership changes at its software and networking businesses.
H-P, known largely for personal computers, server systems and
printers, has been grappling with stiff competition and rapid
changes in the technology landscape. Its lack of revenue growth,
along with the new job cuts, may complicate efforts to revive
growth and innovation at H-P as Ms. Whitman hits the mid-point of
her five-year turnaround plan.
Ms. Whitman said the new layoffs will affect all business units
and geographies.
"We recognize that it is difficult for employees," she said.
"Our employees know there are ways we can be more efficient."
In fiscal year 2014, H-P said it expects the new layoffs will
produce approximately 2 to 3 cents a share of incremental savings,
an estimated incremental charge of approximately $500 million, and
an additional cash-flow impact of approximately $200 million in the
second half of the year.
H-P said layoffs will also create an additional savings in
fiscal year 2016 of approximately $1 billion a year, although some
of this will be reinvested back into its business.
For the quarter ended April 30, H-P reported that net income
rose 18% to $1.27 billion, or 66 cents a share, from the
year-earlier level of $1.1 billion, or 55 cents. On an adjusted
basis excluding certain expenses, H-P put earnings per share at 88
cents.Revenue fell 1% to $27.3 billion. Analysts on average had
expected adjusted earnings per share of 88 cents on revenue of
$27.4 billion, according to Thomson Reuters.
H-P's strongest-performing segment was its PC group, whose sales
rose 7% thanks in part to continuing strength in sales of computers
to businesses. PCs are H-P's largest business by revenue, but they
also produce the lowest profit margin of the company's main
business groups.
RBC analyst Amit Daryanani wrote that mix of the company's
revenues is concerning especially if PC sales start to slow down
following the boost seen in April when some customers were forced
to buy new machines after Microsoft Corp. ended support for its
Windows XP operating system.
Performance at H-P's software group improved, as its sales were
flat with the year-ago quarter. In the previous quarter, software
sales fell 4%. But its large enterprise and printing groups took a
step backwards, while its technology services group continued to
struggle.
While companies like International Business Machines Corp. are
retreating from a hardware market with low margins and intense
pricing pressure, H-P is moving to bolster its computing hardware
business.
H-P's enterprise group makes servers, storage and networking
equipment and represents about a quarter of its total revenue and
roughly 40% of its operating earnings. In the latest quarter, the
enterprise group had grown slightly for the past two quarters, but
its sales dropped 2%.
Revenue in H-P's printing group fell 4%, compared to 2% in the
previous quarter.
As part of the executive changes announced Thursday, Executive
Vice President George Kadifa, who had served as head of H-P's
software operations, was appointed to a new job in charge of
strategic relationships. Taking his place will be Robert
Youngjohns, who previously led H-P's Autonomy unit, which makes
analytics software.
Ms. Whitman said the current head of H-P's server business,
Antonio Neri, was also appointed to run its networking
business.
For the current quarter, H-P put adjusted earnings per share at
86 to 90 cents. Analysts had expected 89 cents on that basis.
For the full year, H-P raised the bottom end of the view by
three cents a share, and now sees a per-share profit between $3.63
and $3.75.
Ms. Whitman is banking that the effort will bring a new class of
business customers who prefer to rent computing technology and
software rather than buy and maintain their own systems.
But Gartner analyst Lydia Leong says H-P's broader challenges
make some companies reluctant to bet on the company as strategic,
long-term partner. "They are worried about their future," she
said.
Write to Spencer E. Ante at spencer.ante@wsj.com
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