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Follow UsBOSTON: Hewlett-Packard Co. raised its estimates on cost savings from its
acquisition of Compaq Computer Corp. and set a schedule for completing the
10-per cent work force reduction that it started after closing the $18.7 billion
deal in early May.
HP expects to cut 10,000 jobs by November 1 and another 5,000 jobs next year,
a total of about 10 per cent, chief executive Carly Fiorina said on Tuesday in
the company's first meeting with analysts since purchasing Compaq last month.
Fiorina also said she sees $500 million in cost savings by the end of fiscal
2002 and $2.5 billion by the end of 2003. By 2004, she sees those cumulative
cost savings rising to $3 billion, above HP's initial target for total savings
of $2.5 billion.
HP promised investors the $2.5 billion in cost savings when it proposed
buying Compaq last September and throughout the hotly contested merger process.
The merger, opposed by a large shareholder and son of HP co-founder Walter
Hewlett, finally closed at the beginning of May.
"We are moving faster and achieving more," Fiorina told the meeting
in Boston. "We set some stakes in the ground on Sept 4. We think they were
appropriate then. We think they are appropriate now."
Fiorina also said that technology customers were still pushing back spending.
She also said she doesn't intend to take an increase in salary until after HP
employees get increases. That won't happen until after the company is finished
cutting jobs, she said.
PC business seen losing money
HP said it expects PCs to continue to lose money in the second half of 2002,
but HP president Michael Capellas said at the meeting with analysts that the
company expects the PC business to return to profitability in 2003.
In its financial forecasts, HP said it expected revenues in its personal
systems group, which is made up of personal computers to decline in the second
half of fiscal 2002 from the first half. It said it expects overall revenues of
$35 billion to $36 billion in the second half and then growth of 4 per cent to 6
per cent in fiscal 2003.
In documents posted on the company's Web site at the same time as the analyst
meeting in Boston, the company said that it expects revenues to grow 7 per cent
to 9 per cent in fiscal 2004.
HP also said that it sees gross margin in the second half of fiscal 2002 of
25 per cent to 26 per cent. In fiscal 2003, HP sees gross margin of 25 per cent
to 26 per cent and in fiscal 2004 sees gross margin of 25 per cent to 27 per
cent. The company also said that it sees operating margin of 3.5 per cent to 5
per cent in the second half of fiscal 2002.
HP said it expects its printing and imaging business to post revenues of $10
billion to $10.5 billion in the second half of fiscal 2002, compared with $10
billion in the first half. The printing and imaging business produced revenue of
$19.5 billion in fiscal 2001, HP said.
The company sees printer revenue growing faster than revenue from any other
division, at 10 per cent in fiscal 2003 and 10 per cent in fiscal 2004. HP said
it expects revenue in its personal systems group of $9.5 billion to $10.5
billion in the second half of fiscal 2002, down from $12.1 billion in the first
half. The group produced revenue of $26.8 billion in fiscal 2001.
HP to consolidate manufacturing base to cut costs
Hewlett-Packard Co. will use its size after its merger with Compaq to
consolidate its outsourced manufacturing and squeeze lower costs from its
suppliers, the company said on Tuesday.
Speaking at the company's first analyst meeting since closing the Compaq
merger in May, HP executives increased their target for total cost savings from
new procurement practices and other integration efforts to $800 million from
$550 million, with one executive saying savings of more than $1 billion were
possible.
Financial analysts who cover the contract manufacturing sector have been
awaiting more details on which manufacturers might benefit, and which might be
left out of HP's restructuring of its outsourced manufacturing.
All five of the top contract manufacturers -- Flextronics International Ltd.,
Solectron Corp., Sanmina-SCI Corp., Celestica Inc. and Jabil Circuit Inc. --
count HP as a key customer, accounting for as much as 10 per cent of revenue in
the cases of Celestica and Sanmina.
HP's discussion of its plans for consolidation came as shares in the sector
were being battered, a day after Flextronics said it would miss analyst
estimates for the next two quarters because of a continued slump in spending for
technology, particularly data networking and telecom gear.
Flextronics was down nearly 20 per cent in mid-afternoon trade on the Nasdaq,
and the other four top-tier companies in the sector were down between 4 per cent
and 7 per cent, as well. HP provided no detail on how it would narrow its base
for outsourced production, but said the effort was key to the merged company's
cost-savings plan.
Mike Winkler, HP's executive vice president for worldwide operations, said,
"The supply chain, I believe, is an area that will prove to be one of the
greatest sources of value capture." Winkler said the company is seeking to
move to the use of more industry-standard components and leverage its size to
get lower prices for those parts.
"We are rationalizing the supplier base ... we are going out for
re-bids," he said, noting that the company will buy 13 per cent of the
world's dynamic random access memory, or DRAM, and 12 per cent of its hard-disk
drives. "I would be extremely disappointed if we didn't do well over a
billion (dollars)" in cost savings, he said, as a result of the
consolidation efforts.
HP said last year, even before the Compaq merger was announced, that it
wanted to consolidate its relationships with contract manufacturers, which build
products like personal computers, servers, printers and cameras for the company
and other name-brand manufacturers.
Flextronics chief executive Michael Marks said on Monday he did not expect
his company's business with HP to be affected by consolidation because
Flextronics builds printers and not PCs for the company. HP is increasingly
employing a "zero-touch, zero-inventory" model for its outsourced
production, designing machines but leaving all of the production, assembly and
shipping to the manufacturing provider, Winkler said.
(C) Reuters Limited.