HP's 2nd Qtr. PC Sales Drop 15 Percent

PALO ALTO, CALIF.— With the curtain coming down on Hewlett-Packard's solo financial effort — Compaq Computer is waiting in the wings — HP recorded its final individual business quarter before the two computer makers join in post-merger earnings reports in the coming months.

Net revenue in HP's Embedded and Personal Systems segment — which includes home PCs, commercial desktop PCs, notebooks, handhelds and DVD+RW drives — dropped 15 percent in the company's fiscal second quarter, reaching $2.2 billion, down from $2.5 billion in the year-ago period.

While revenue in this segment declined 13 percent sequentially overall, sequential consumer notebook revenue climbed 10 percent, and the company's consumer PC business posted a profitable quarter, HP said.

Operating margin in the segment was a negative 4.9 percent, compared with break-even in the last quarter, and a negative 3.4 percent year over year. This reflects tough competition, lower volumes and rising component costs, the company said.

Earnings from operations in the Embedded and Personal Systems segment dropped 25 percent in the second quarter, ended April 30, with HP extending its loss to $106 million, compared with a loss of $85 million in the same three months in 2001.

For the six months, net revenue in the Embedded and Personal Systems segment slid 14 percent, to $4.6 billion, down from $5.4 billion in the same period last year.

Earnings from operations for the six months in the Embedded and Personal Systems segment saw HP reduce its loss by 27 percent, hitting a negative $110 million, compared with a loss of $151 million in the same two quarters the previous year.

Overall, HP recorded a 9 percent decline in revenue in the second quarter, dropping to $10.6 billion, down from $11.7 billion in the same three months in 2001. Sequentially, pro forma revenue dipped 7 percent, while gross margin increased 180 basis points, to 28.7 percent. U.S. revenue was down 11 percent in the second quarter sequentially, and down 16 percent year over year.

HP posted a net profit of $252 million in the second quarter, up sharply from the $47 million reported in the same quarter last year. Excluding one-time items, the company recorded pro forma net earnings of $498 million, up 48 percent from the $336 million recorded in the second quarter in 2001.

For the six months, HP revenue dropped 9 percent, to $22 billion, down from $24 billion in the year-ago period. Net earnings climbed to $736 million for the six months, compared with $188 million in the same six months last year. Excluding one-time items, HP reported pro forma net earnings of $1.06 billion, down 7 percent from the $1.12 billion recorded in the year-ago six-month period.