HP profits take a dive in third quarter

Report shows company’s black ink drops 90 percent

HP had warned investors it expected a tough quarter, but results from its third quarter report showed the company dipped closer to flat profits than anytime in the last 20 years.

The report, which drove HP share prices down, showed just six cents of profit per share. One of those cents came through early paydown of some debt, something the cash-flush company is still able to manage.

Hewlett-Packard managed a total of $145 million in profit for the period ending July 31, but only $111 million came from operations. HP posted losses in its Computer Systems and other businesses, while Imaging and Printing and Services posted a combined $422 million in profit. HP posted $10.1 billion in sales for Q3.

While the company has pointed to the consumer economy as prompting much of its fiscal slide, the retreat in Computing Systems has been the steepest. In the third quarter of last year, the segment showed $405 million in profit. 2001’s numbers for the same period showed $178 million of red ink.

HP is still showing more than $1.1 billion in profits for the fiscal year to date, but its last four quarters have seen a steady decline in earnings. One year ago the company posted a record $1.1 billion in profit for a single quarter.

The economic slowdown isn’t confined to HP, according to US government figures on Gross Domestic Product growth. A late August GDP report showed the economy grew at just 0.2 percent over the second quarter. A falloff in business investment shaved two percentage points from GDP growth in the quarter ending June 30, while a falloff in software spending cut 1.52 percentage points. Business spending on computers and software dived by more than 15 percent during the first half of 2001.

HP notified division managers and section heads of their layoff requirements in the two business days following the Q3 report. The company is cutting 6,000 jobs by the end of October, a move which it now expects to cost $250-$300 million in restructuring charges, to be posted against the final quarter of its fiscal year.

“We are managing through what is clearly a significant global economic downturn — and our results reflect this tough environment,” said CEO Carly Fiorina in a press release. “Looking forward, while market conditions remain far too dynamic to predict outcomes, we expect to see some sequential revenue growth in Q4 due to seasonal effects with gross margins and expenses essentially flat on a sequential basis.”

While sales are off nearly everywhere in HP — only the IT Services segment showed a growth in revenue — its server business may be hardest hit. In Hewlett-Packard’s Computing Systems, the second of its three major segments, third quarter revenue fell 22 percent. Those sales generated red ink, too: operating margin in the segment fell to negative 4.5 percent from a positive 8 percent a year ago. HP reported its UNIX server revenue was down 22 percent.

Growth is down by the same 12 percent rate from Q2 in the US and European markets for HP. Year to year, the US business has fallen off 19 percent from 2000’s Q3, compared to an 8-percent decline for European revenues.