HP hangs tough on pricing
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Better than expected cost savings at Hewlett Packard Co will feed through to a more aggressive pricing stance the IT giant warned yesterday as it unveiled better than expected fourth quarter results.
The company turned in sales of $18bn for the quarter ending October 31, down 1% on the previous year. Operating profits were $425m, compared to a loss of $186m the previous year, while net profits were $390m, compared to a loss of $505m a year ago. On a proforma basis, the Palo Alto, California-based company turned in earnings per share of $0.24. Wall Street had been expecting $0.22 on sales of $17.3bn.
The quarter was the second full reporting period since HP's takeover of Compaq Computer Corp. The company said it had made merger related cost savings of $651m in the second half, 30% ahead of plan, while its merger related workforce reduction, at 12,500 so far, was 25% ahead of plan.
Chairman and CEO Carly Fiorina said that the cost reductions enabled the company to be more aggressive on pricing, although the firm's first priority was to keep within its stated profitability guidelines. The company plans to take "specific price actions" in targeted markets and geographies, she said. Likely areas include PCs and industry standard servers, where the company faces stiff competition from the Dell juggernaut. Fiorina also mentioned the printer sector, a market Dell plans to enter next year.
Despite besting analysts' targets overall, the results highlighted HP's continuing struggle to turn round large parts of its business. Its printing and imaging group made an operating profit of $926m on sales of $5.6bn, while HP Services made $381m on sales of $3.1bn. However, Personal Systems lost $87m on sales of $5.1bn, Enterprise Systems lost $152m on sales of $4.1bn, and HP Financing lost $101m on sales of $3bn.
Nevertheless, the Enterprise and Personal Systems losses were less than the previous year. Fiorina said the company still expected the PSG and ESG business to return to operating profitability next year, with PSG moving back into the black first.
In the short term, the company said it was comfortable with Wall Street's current consensus forecast, of $0.27 on sales of $18.4bn. CFO Bob Wayman said the business environment remained challenging in a "weak but stabilizing world economy." Fiorina said the company wasn't banking on a substantial upturn on the back of the holiday buying season. The seasonal upturn was likely to be a third below normal.
Fiorina shrugged off the departure of president and COO Michael Capellas last week, describing it as "unsurprising." It was something the company had been prepared for, she said, and the company had a strong management team with plenty of experience. "His leaving is not an issue for this company," she said, adding that "in no way takes away from his capabilities" and "WorldCom is lucky to have him."
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