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HP to cut 6,000 jobs, warns of poor Q3

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CIOL Bureau
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Peter Henderson

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SAN FRANCISCO: Hewlett-Packard Co. warned on Thursday third-quarter revenue

would be well below expectations as consumer sales plunged 24 per cent amid a

slowing worldwide economy, and the computer and printer maker said it will cut

6,000 jobs, or 6.5 per cent of its work force,

"Global economic conditions have continued to deteriorate as has tech

spending around the world, particularly in the consumer sector," chairman

and chief executive Carly Fiorina said, echoing a string of warnings she has

made this year. It marks the third consecutive period that Fiorina has had to

warn of disappointing results.

Fiorina, who is piloting an ambitious, three-year restructuring of the

company that began just before the economy soured, also flatly ruled out a

rebound this year in sales at the No. 3 PC maker and the world's biggest

computer-printer manufacturer.

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She joined Hewlett-Packard two years ago from Lucent Technologies Inc., where

she headed its service provider unit.

The current grim economic picture has produced miserable recent results for

high-tech companies, but that won't help Fiorina, who could find herself in hot

water with investors if H-P's sales don't rebound when overall demand does. So

far, though, they appear to be giving her the benefit of the doubt.

"Because she is new, you may see a little bit of leeway, with investors

giving her the doubt based on what's going on in the economy," said Bill

O'Hearn, a portfolio manager at Valentine Capital. "But coming out of this,

if she doesn't perform, then I think she may have a problem."

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Hewlett-Packard said revenue in the third quarter, which ends this month,

would fall 14-16 per cent from a year ago, more than double the drop Wall Street

expected.

Following the news, Hewlett-Packard shares fell 6.67 per cent to $23.99, the

lowest since early October 1998. Hewlett-Packard was among the most active

stocks in late trade on the New York Stock Exchange. The stock's all-time

intraday high of $77.75 was hit March 10, 2000.

Shares of Hewlett-Packard have lagged all but three of the 30 Dow Jones

industrial average's components since the start of this year, and has lagged all

but No. 1 chipmaker Intel Corp. during the past 52 weeks.

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First major job cuts this year for H-P



The job cuts will start next month and mostly take place in the fourth quarter,
saving the firm about $500 million annually. Hewlett-Packard, which employees

93,000 people, had announced two rounds of smaller job cuts earlier this year

totaling about 4,700 positions.

But many employees found new jobs within Hewlett-Packard, and the company

lost only 1,000 employees. The Silicon Valley icon that began in a garage and

grew into a firm with nearly $50 billion in sales is in the middle of a major

restructuring.

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The company is seeking to weed out bureaucracy and restore the inventive,

entrepreneurial spirit that was once its hallmark while at the same time

building a powerful computer-services and consulting business.

"I don't think they are bungling the process at this point," said

Laura Conigliaro, an analyst at Goldman Sachs. "They had the severe

misfortune of running headlong into a severe (information technology) spending

slowdown." The company is also considering more cost-cutting moves by

getting out of non-core businesses through divestiture or contracting out some

tasks, Fiorina said on a conference call.

"I would not expect a second-half recovery in 2001 ... Frankly, for

planning purposes, we can't call when that will occur. But certainly it isn't

going to be a rapid hockey stick up and to the right," she said. The hockey

stick image is a common way of describing a chart that depicts a sharp rebound.

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Jay Stevens, an analyst at Buckingham Research Group, said, "When they

talk slowdown, we better pay attention, because of the breadth of their product

line."

The latest revenue warning



Hewlett-Packard said in May when it reported second quarter earnings that
revenue in the third quarter could be flat or down by as much as 5 per cent. In

June, the company said it had turned more cautious about its revenue guidance

after May sales proved to be weaker than expected.

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The 14 per cent to 16 per cent decline compared with the prior consensus

revenue forecast that centered on a decline of 6 percent in revenue, to $11.1

billion vs. $11.8 billion a year ago, according to Thomson Financial/First Call.

The overall revenue decline includes a 3 percent hit from currency

fluctuations, the company said. Hewlett-Packard was not only feeling the pain of

slowing economies around the world and falling technology spending, but also a

PC price war led by Dell Computer Corp. that has taken a toll on rivals such as

Compaq Computer Corp. and NEC Corp.

"The biggest recent change is the precipitous decline in our consumer

business in all major geographies around the world," Fiorina said on the

conference call, referring to the company's personal computer, printer and

computer appliance businesses. Europe, Asia, Latin America as well as North

America showed weakness.

Conigliaro said Hewlett-Packard most profitable business - printers and the

supplies that fatten profit margins - was weak, pointing especially to slowing

growth in ink jets.

"What happens to consumables is doubly important," because

consumable products like ink jet supplies provide much of the full company's

profits, she said. Corporate-focused businesses were doing better than the

consumer businesses, the company said.

Some businesses, such as services, are still growing



Fiorina said the company's outsourcing and consulting businesses were expected
to grow 20 per cent and 9 per cent, respectively, in US dollars, or 25 per cent

and 15 per cent in constant currency. The company's support business is expected

to post gains of 4 per cent in US dollars, and 9 per cent in constant currency.

The company said its gross margins were expected to be around 25 per cent to

25.5 per cent. Hewlett-Packard said that as a result of cost-control measures,

it expected expenses to be down 2 per cent to 4 per cent in the third quarter

compared with the second quarter.

"I don't think they are doing too much" by taking on such a massive

restructuring, said Dan Johnson, an executive director of UBS Asset Management.

"But certainly it isn't easy."

The same could be said of CEOs at any number of high-technology companies

these days. "I think it would be hard to blame any chief executive right

now," said Sanford Bernstein analyst Toni Sacconaghi, pointing to

widespread corporate wreckage.

"Giants have been humbled," he said.

(C) Reuters Limited 2001.

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