HP’s 3Q report presents the bill for its merger

Financial results for HP’s third quarter of 2002 made history in two ways. The numbers represented the first combined figures for HP and Compaq operations after the firms’ May 7 merger. And for the first time, HP reported a net loss for the 90-day period ending July 31.

HP told analysts the two pieces of history were related to one another. The company is on track post-merger, according to CEO Carly Fiorina, but it still posted a 67-cent per share loss for the period, or just over $2 billion in red ink. HP said that $3 billion in costs made up the expense of merging with Compaq. It also reported that the combined operations of both companies for the third quarter of 2001 would have shown a $114 million loss. Without the expense of the merger, this year’s third quarter would have showed a $420 million profit.

HP expects its business to pick up while it reduces operating expenses — but its advice to analysts showed it can only count on cost-cutting, while it is hopeful about a business rebound next year. Enterprise systems, including sales of the HP 3000 as well as the company’s Unix business servers, reported another dismal quarter, showing no profit now since early in 2001. The company’s PC business deteriorated as well, with revenue dropping 18 percent and the group showing an operating loss of 4 percent for the period. Overall, HP recorded $16.5 billion in revenue, buoyed by another strong quarter in the printer and imaging products sector. Printers more than doubled their operating profit margin.

Analysts received confirmation that HP expects its next period to show a 22-cent-per-share profit, excluding charges for the restructuring of the company. Only about 4,700 employees had been laid off or taken early retirement by the time of the third quarter report, and the company has a goal to eliminate 10,000 positions by Nov. 1. Cost-cutting in HP’s enterprise systems group is accelerating, according to president Michael Capellas, meaning the company’s staff cuts are certain to be felt in the HP server units.