HP Reports Sharp Drop in Earnings

Hewlett-Packard's first-quarter earnings are off 13%, and the computer giant predicts the rest of the year will be just as rough

By Cliff Edwards

Amid a broad-based decline in its core personal computer and printer businesses, Hewlett-Packard (HPQ) on Feb. 18 reported that first-quarter earnings tumbled 13%, despite a slight 1% rise in revenue. The company predicted no quick rebound in its fortunes and cut its full-year earnings forecast.

Despite the weaker performance, the technology giant's broad portfolio of products and services and intense cost-cutting efforts appear to be helping it weather the global economic downturn better than most of its peers. "HP executed well in a challenging market," said Mark Hurd, HP chairman and chief executive officer.

Profit Margins Still Show Growth

HP appears to be benefitting from it early focus several years ago on trimming the fat across the company's expansive operations. Other tech companies are following suit. Chipmakers Intel (INTC) and Advanced Micro Devices (AMD) have been cutting costs and shedding factory capacity as sales of personal computers weaken sharply. Microsoft (MSFT), meanwhile, announced the first layoffs in its history, and Cisco Systems (CSCO) reported slow growth as orders for its products declined markedly. PC maker Dell (DELL) reports its earnings next week.

The Palo Alto (Calif.)-based HP, which makes computers, printers, software, and other products, reported net income for the three months ended Jan. 31 fell to $1.9 billion, or 75¢ a share, from $2.1 billion, or 80¢ a share a year ago. Revenue rose to $28.8 billion from $28.4 billion.

As part of a major cost-cutting effort Hurd told employees that the company would reduce base pay for execs and salaried workers. The company also is making changes to its 401K and share ownership plans.

Some analysts took solace from the fact that, in the face of the steep decline in sales and earnings and intense pressure to cut prices, HP still maintained or grew operating profit margins in most business segments. That suggests Hurd's heavy emphasis on cost-cutting and sharing of technology and software across the business groups continues to pay off. "The numbers show no one's immune to the current downturn," says Edward Jones technology analyst Bill Kreher, "But HP's strong focus on cost controls will help them emerge in a stronger position when demand recovers."

On a non-GAAP basis, the company met Wall Street expectations that it would earn 93¢ a share. HP's stock, which had been under pressure during trading on the Nasdaq, continued to retreat in after-hours trading. It was down about 6% from the market close, to 32.10 a share.