Reuters Company News
HP starts cutting jobs, readying new outlook
By Peter Henderson
SAN FRANCISCO, June 3 (Reuters) - Hewlett-Packard Co. (NYSE:HPQ - News) has begun widespread layoffs seen as key to the financial success of its merger with Compaq Computer Corp. and expects to outline the progress of the controversial deal on Tuesday.
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"Those notices have begun," Jim Milton, senior vice president, Enterprise Systems Group and general manager, HP Americas, told Reuters on Monday. He was referring to notice given to employees they will be laid off, but declined to say how many workers have been told.
At the merged company's first meeting with Wall Street analysts, Chief Executive Carly Fiorina and her team will give the first official financial forecast for the company since the merger was announced in September.
The deal, which was the biggest technology industry merger ever, sparked a long, nasty proxy battle in which a dissident board member and founder's son Walter Hewlett argued the deal would not help the company to compete.
After suffering a beating in the markets since the contested plans were made public, HP's stock was buttressed in early May, just before the launch of the merged company, by upgrades from analysts. They concluded the stock was cheap and much of the financial success in the next year could come from cost cuts.
"(Hewlett-Packard) not only represents a compelling valuation, but the sources of its earnings are predicated on cost and head count reductions, which we believe are eminently more 'count-on-able' than a bet on an economic or IT spending recovery," Sanford Bernstein analysts Toni Sacconaghi wrote in his upgrade report on May 2.
HP shares climbed after May 7 but have lost most of those gains, closing at $18.85 on Monday, compared with $18.41 on May 7 and $23.21 on Aug. 31, the last day of trade before the merger was announced.
Fiorina expects to make most of the 10 percent cut in positions within six to nine months of the launch date -- five to eight months from now -- and the first line of attrition will come from early retirement buyouts offered some 9,000 U.S. employees.
That buyout offer closes on Friday. Fiorina said earlier this month she will give an update on that progress. Technology researcher Martin Reynolds of Gartner Inc. said that would be just in time.
"I feel they are almost beginning to push the envelope a little bit in term of not announcing these layoffs," he said.
HP's Milton said that four of six to seven levels of management had been named in most of his organization and that the threat of layoffs was not paralyzing workers.
"There is a little bit of apprehension, and I think it is important to note that, but it pales in comparison to the positive euphoria that exists," he said. "The momentum is obviously there."
HOUSEKEEPING
Housekeeping details of integrating and slimming the two companies will be the highlight of the analyst conference, said Carl Hoagland, an analyst at State Street Global Advisors. He said he is attracted by HP's value but still concerned about merger execution.
He also was interested to hear what HP would say about rumors that No. 2 personal computer maker Dell Computer Corp. (NasdaqNM:DELL - News), deposed from its status as PC industry leader by the merger, was considering a move into printers, where HP makes most of its profits.
Chief Financial Officer Bob Wayman is also expected to come out with new financial forecasts, but Hoagland said they were not the key.
"If they come out with numbers, fine, I'll write them down with great care, but the believability, the credibility just isn't there at this point. I think it is really way too early," he said.
HP had forecast in September that the merger would cost the combined company up to 4.9 percent in lost revenue but save it $2.5 billion through cost cuts by the end of 2004, with $2 billion of the cuts due by the end of 2003.
However, HP has not given guidance for the fiscal third quarter which ends in July. Analysts polled by Multex expect 20 cents earnings per share, in a range of 15 cents to 27 cents, on sales of $17.7 billion in the period.
Wayman has also said he will give some better historical performance for the merged companies.
Gartner data for sales of powerful server computers in the first quarter showed combined market share of HP and Compaq steady, buttressing HP's claims that it has not lost customers during the turmoil of the merger.
"The new HP is doing better than the old HP. I am beginning to wonder how bad a shape their computing division was in," Reynolds said, although he said HP Chief Operating Officer Michael Capellas, who runs the company day to day, had some tough cost cutting to do, and to do quickly.
"It is not really a honeymoon. He's got six months to make changes," he said. |
