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Hewlett-Packard Earns Only 10 Cents Per Share, Blames Low Computer Prices

Posted on: Thursday, 21 August 2003, 06:00 CDT

Aug. 20--Hewlett-Packard Co. stumbled far below expectations for third-quarter profit on Tuesday, blaming its aggressive computer pricing for the miss.

The technology giant's income of $297 million, or 10 cents a share, was far below the consensus of 22 cents a share from Thomson First Call's poll of analysts.

The income beat last year's third-quarter loss of $2 billion, or 67 cents a share. Revenue rose to $17.4 billion from $16.5 billion.

The earnings report after the market's close on Tuesday stunned investors, who sent H-P shares down 8 percent in after-hours trading. Shares had closed earlier at $22.11, down 2 cents.

H-P, based in Palo Alto, Calif., said its personal computer business contributed the most to the earnings miss. The unit's operating loss was 1.1 percent of revenue, down 1.5 percentage points from the second quarter.

PC component costs rose more than expected, putting a dent in H-P's pricing plans. And the company invested earlier this year than it had last year in developing a big round of consumer product announcements, though most of that investment came out of H-P's printing unit, said chief executive Carly Fiorina.

Retailers gearing up for the back-to-school season invested heavily in low-end PC configurations. And H-P's biggest rival, Dell Inc. of Round Rock, Texas, didn't sink its prices to match H-P's, meaning H-P didn't need to set its sights so low.

"Our own PC pricing actions negatively impacted gross margins," Ms. Fiorina said.

"We must do a better job up-selling and cross-selling to improve average selling prices."

Ms. Fiorina promised a PC profit in the fourth quarter, which ends in October.

The company is investing in better ways to tie prices to trends in the market, and has had some success in pushing more of its sales to the Internet and the phone, away from retailers and resellers, she said.

H-P's unit for corporate customers, which sells products such as servers and storage devices, continued to struggle, posting an operating loss of 1.9 percent of revenue.

The third quarter is a seasonal lull, Ms. Fiorina said. "But still, we should've done better," she said.

Sales of low-end and mid-range servers based on the Unix operating system continued to slip as corporate customers chose servers based on Windows and Linux.

That trend validated H-P's purchase of Houston-based Compaq Computer Corp. last year, since it gave H-P better positions in growing market categories, Ms. Fiorina said.

H-P isn't surprised that low-end and mid-range Unix sales are dipping, she said, although the rate of decline is faster than the company expected.

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(c) 2003, The Dallas Morning News. Distributed by Knight Ridder/Tribune Business News.

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