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August 2001

HP to cut 6,000 jobs as revenues fall short

HP CEO Carly Fiorina reported the company’s Q3 revenues will skid 14 percent lower than last year’s third quarter, prompting another round of layoffs. The CEO said 6,000 HP workers are getting notice of layoffs during the first half of August, with the actual job reductions coming during the company’s fourth quarter. The layoffs were the largest in Fiorina’s two-year tenure as CEO, and the steepest in company history.

HP issued the revenue warning about three weeks before its official Q3 numbers were to be released, and five days before the quarter ended. Investors sold the stock down 6.5 percent on the news to $24 a share.

Fiorina said HP Q3 revenues dropped largely on declining sales in the company’s consumer businesses, its PC and printer products. Corporate-related businesses were improving in the period. She pointed to upswings in the support, consulting and outsourcing businesses for the company during Q3, but said “our consumer business is being particularly hard hit, with revenues expected to be down 24 percent.”

The 6,000 layoffs won’t deliver savings to the company until the start of the 2002 fiscal year, the earliest possible period Fiorina hopes for a turnaround in HP’s overall sales revenues.

“I do not expect a second-half recovery in 2001,” she said. “We have not expected that for some time. Frankly, for planning purposes, I don’t think we can call for when a recovery will occur — but it certainly isn’t going to be a rapid ‘hockey stick’ up to the right.”

HP’s head count has being doing the climbing during 2001, going from 90,000 to 93,000 even after 1,700 layoffs in marketing and another 3,000 management positions were cut in the current quarter. The latest announcement didn’t identify a specific sector of the company where the layoffs would take place. HP had already gotten 80,000 of its employees to voluntarily take eight vacation days off or a 5-10 percent pay cut in what it called the Payroll Savings Program. That program will save HP $130 million in this fiscal year; the layoffs are expected to save the company $500 million next year. HP may have to take a charge against its profits to pay severance to the laid off employees.

Fiorina said the layoffs “are based on a series of assessments we have been doing over the past several months. This is not a knee-jerk reaction. In the US, this will be a performance and skills-based program.” The steep drop in PC sales was taking a job toll at other vendors; Dell and Compaq both laid off thousands of employees in the weeks before HP’s latest layoffs. HP has also cut back on travel, cell phones and executives’ use of company cars this year.

HP will also be divesting itself of “non-core” assets through the rest of its fiscal year, which ends on Oct. 31. “There will be more decisions around outsourcing and divestitures not included in this 6,000 number,” Fiorina told analysts in a briefing conference call. HP is already outsourcing most of its manufacturing, so further outsourcing will come in areas such as its accounts payable processes.

While PCs and printers were weakening — and along with the latter, HP’s high-profit printer supplies business — HP’s service activities were growing. Outsourcing grew 25 percent and consulting grew 15 percent in constant currency; HP’s support business is expected to post gains of 9 percent in constant currency.

“The greatest source of weakness is the consumer business,” Fiorina said — adding that HP believes economies around the world were continuing to weaken during Q3.


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