Mixed Results for HP

Printer and services units saw profits in 3Q, while enterprise and personal systems groups reported losses.

Hewlett-Packard Co. earned $297 million in the third quarter on revenue of more than $17.35 billion, with both the printer and services units reporting profits.

However, both the enterprise and personal systems groups reported losses for the three months ending July 31, officials with the Palo Alto, Calif., company reported on Tuesday.

The $297 million was a jump over the $2 billion the company lost during the same period last year, the first after HPs $19 billion acquisition of Compaq Computer Corp. Revenue during the same period last year was just over $16.5 billion.

"The third quarter is always tough, but we should have done better," Chairman and CEO Carly Fiorina said in a prepared statement. "Nevertheless, we are confident in our strategy and the actions were taking. We expect to deliver a strong fourth quarter with every one of our businesses profitable."

The financial numbers come a week after HP unveiled its largest single product launch, rolling out almost 160 consumer products—from digital cameras and printers to scanners and laptops—and promising more before the end of the year. Also last week, the company hosted its HP World 2003 event for its enterprise users, pushing its Adaptive Enterprise initiative, which is designed to make the data center easier to manage and enable IT resources to more quickly respond to business needs.


During the third quarter, the companys Imaging and Printing Group earned $739 million on $5.24 billion in revenue. HP Services had $337 million in profits on $3.08 billion in revenue.

However, the Enterprise Systems Group lost $70 million on $3.71 billion in revenue. HP officials said the losses were due in part to the launch of the companys Integrity line of Itanium-based systems, investments in management software and a decision to accelerate the Alpha processor transition to Itanium. However, the group also boasted record shipments in its ProLiant servers and StorageWorks EVA disk storage systems, and record revenue in its high-end Superdome systems.

The Personal Systems Group lost $56 million on $4.97 billion, although its notebook business was profitable, the company said. Lower average unit prices and high freight costs for shipping flat panel displays played into the loss, they said.

Regarding the weakness in the Personal Systems Group, Fiorina said during a conference call with analysts that part of the problem was an aggressive pricing plan undetaken by HP as it worked to grow its market share, particularly in the notebooks space. The company has increased prices to ensure that its bottom line wasnt hurt. The fact that Dell Inc. did not follow pricing cuts validated HPs belief that the cuts were too deep.

"We can continue to grow that [notebook] business, but we have to do it in a practical way," Fiorina said.

Fiorina said that despite the bumps in the third quarter, HP enters the current quarter in a strong position.

"Its certainly fair to say we ended the quarter with strength," she said. "Certainly we are seeing strength in our services business. We are seeing strength in our enterprise business. And if you look at the consumer business, we are going into the strongest quarter of the year."

In the enterprise space, Fiorina said that HP will continue to make adjustments—such as in job cuts—in its Enterprise Systems Group to address the continue bifuraction of the server market between low-end industry-standard servers and high-end Unix systems, with the mid-range Unix server space shrinking. She said that company officials saw the changes in the market happening even before its merger with Compaq—which is why the company pushed the development of its high-end Unix Superdome server, and why HP needed to shore up the industry-standard line with the acquisition of Compaqs ProLiant product line—but that it was happening more quicky than they expected.

HP officials said that in the current quarter, the company will trim another 1,300 jobs, coming on the heels of 3,500 the company announced last quarter.

Chief Financial Officer Robert Wayman said he expects revenue in the fourth quarter to come in between $18.8 billion and $19.1 billion.