HP and Gateway ($19) Warn on Earnings
By BRIAN BERGSTEIN
AP Business Writer
SAN JOSE, Calif. (AP) -- A slowdown in technology spending has resulted in sharply reduced profit outlooks at Hewlett-Packard Co. and Gateway Inc. (NYSE:GTW - news), which said Thursday it would cut more than 10 percent of its 21,000-member work force.
``Frankly, it was like somebody turned the lights out,'' Hewlett-Packard CEO Carly Fiorina said.
Gateway, which also posted fourth-quarter earnings that fell a hefty 25 cents per share short of Wall Street expectations, said low worldwide PC demand and low prices are expected to last at least through the first half of this year.
The job cuts were necessary to try to increase revenue growth and profitability, said Jeff Weitzen, Gateway's president and chief executive officer. Gateway will take a related $50 million charge against earnings.
``For now, we need to prioritize our business initiatives against the present economic realities,'' Weitzen said. ``Tough times call for tough decisions.''
HP shares rose 63 cents to $32.38 on the New York Stock Exchange before the earnings warning was announced, then dropped to $30.63 in after-hours trading. Gateway rose $2.96 to $22.90 on the NYSE, then dropped to $20.
``They're not alone in having thought that maybe the economic slowdown was going to look a bit more like a soft landing,'' said Daniel Kunstler, an analyst who follows Hewlett-Packard for J.P. Morgan H&Q. ``Things simply started sliding faster than they anticipated ... It looks more like an economic rather than a supply-specific or execution thing.''
For its fourth quarter, Gateway lost $94.3 million, or 29 cents per share, on revenues of $2.37 billion. Excluding a charge related to its investments in technology companies, Gateway earned $37.6 million, or 12 cents per share.
Analysts had already lowered expectations after a warning by Gateway on Nov. 29, and were expecting earnings of 37 cents per share, according to a survey by First Call/Thomson Financial.
``When we pre-announced on Nov. 29, we had expected some continued ramping of demand in December based on past experience, but that did not materialize,'' Weitzen said. ``Softer sales have caused inventories of our competitors to swell, and have touched off an aggressive pricing environment that will have negative consequences for the PC sector for the next six months.''
Weitzen said the holiday season was one of the worst the industry had ever seen, and he noted several factors that didn't go his company's way. For one, because Christmas fell on a Monday and United Parcel Service doesn't deliver on Sundays, Gateway sent more PCs to stores than usual to meet the needs of last-minute shoppers. With demand low, many of those PCs are still sitting on store shelves.
That will contribute to a 10 percent drop in revenue in the current quarter and flat revenues in the second quarter, John Todd, Gateway's chief financial officer, said with a sigh on a conference call with analysts.
Gateway also reduced expectations for 2001, saying it would achieve operating earnings per share growth of 6 percent compared with 2000.
San Diego-based Gateway earned 95 cents per share for the year 2000 -- a 6 percent increase would be about $1.01 per share. Excluding one-time charges, the company expects 2001 earnings per share to be about $1.44, 23 percent below the $1.88 a share analysts had predicted.
Gateway said employees would be laid off over the next six weeks in divisions around the world. Specifics about which sites would be hit were not announced.
Hewlett-Packard, the Palo Alto-based computer, printer and server giant, said it expects to earn between 35 and 40 cents per share this quarter. Analysts surveyed by First Call/Thomson Financial were predicting 42 cents per share, up from 40 cents in the same quarter last year.
Before Thursday's announcement, HP had said it expected revenue to grow by 15 percent to 17 percent this fiscal year. Faced with questions from analysts skeptical about that figure in December -- after holiday season computer sales were weaker than expected -- Fiorina insisted it was a reasonable target because of HP's balance across several product lines and overseas markets.
However, HP would not address its full-year expectations Thursday. First-quarter earnings are due Feb. 15.
These are especially bad times for PC makers because the market is somewhat saturated, with consumers having few reasons to upgrade if they already have a computer. Plus, the gloomy economy has made many people even more wary of big purchases.
Even so, computer industry analyst Tim Bajarin, president of Creative Strategies Inc., expects that in a few months, consumers will want more powerful PCs to take advantage of better streaming media content and a new upgrade to Microsoft's (NasdaqNM:MSFT - news) operating system, known as Whistler.
``Barring any major recession,'' he said, ``we should see something of an upturn in the PC industry during the second part of the year.''
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