HP tightens financial belt for 'tough' Q3

No stomach for 'profitless revenue'

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Move over beleaguered Cisco Systems, here comes Hewlett-Packard. Newly minted Hewlett-Packard CEO Leo Apotheker is looking for HPers to tighten the belt and use good judgment aimed at generating profits as they pursue sales in the company's third fiscal quarter of 2011, which began on May 1.

According to a report in the Wall Street Journal, Apotheker sent the email on May 4, which was the same day that the company announced it would be holding its quarterly conference call with Wall Street analysts to go over HP's second quarter of fiscal 2011 ended on April 30.

An HP spokeswoman refused to confirm the existence of the memo to El Reg and refused to comment on the matter. But the WSJ said that the Apotheker told HP employees to expect "another tough quarter" coming up and that they had to "watch every penny". Apotheker was particularly forceful about how the company has to work to boost revenues and profits alike and reminded the company's staff that the company could not engage in "profitless revenue" and had no room for "discretionary spending."

Bloomberg also got its hands on the Apotheker memo, and said that the HP CEO told his top brass to "minimize all hiring" and that its current workforce was "unaffordable" given all the issues HP is facing. The company had 324,600 employees at the end of its fiscal 2010 last October, and is reportedly re-examining its headcount and cost structure.

That sure doesn't sound like a recovery in IT spending like IBM, Intel, and others are crowing and crooning about as they boost their dividends and share buybacks. HP has a lot more exposure in the consumer market than Big Blue, of course, and Intel has benefitted mightily from a resurgence in corporate server spending and the Windows 7 refresh cycle among businesses, which pretty much ignored Windows Vista and are very eager to get off Windows XP. (Intel gets to keep the lion's share of profits in the PC racket.)

The news that HP is tightening its belt for Q3 follows a miss in Q1. In Apotheker's first full quarter on the job ended January 31, HP posted revenues of $32.2bn, up 3.2 per cent, with net income of $2.61bn, up 15.8 per cent compared to the year ago quarter. But the company also said that because of issues in short-term services business and in its PC business in China, it would chop $2bn out of the company's revenue guidance for the full 2011 year.

That would put sales at $130bn to $131.5bn. Cathie Lesjak, HP's CFO, said that the company was raising guidance for non-GAAP earnings per share for the year, from $5.20 to $5.28, up somewhere between 14 and 15 per cent compared to fiscal 2010. And that is with pay raises to HP employees factored in for the year.

Lesjak said back in February that HP's second fiscal quarter sales to be between $31.4bn and $31.6bn. In after-hours trading on Monday after the news broke, HP's shares were down 4.9 per cent, to $37.87. ®

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