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HP Posts Lower PC Segment Operating Loss

8/20/2003 10:03:00 AM Eastern

Palo Alto, Calif. - Personal computer price cuts at Hewlett-Packard, deemed overly aggressive by the company, teamed with seasonally slow sales, to account for a $56 million operating loss in HP's personal systems segment during its fiscal third quarter.

However, this loss dwarfed the $140 million operating loss for personal systems racked up in the year-ago period.

HP said personal systems group third quarter losses were driven by reduced volumes associated with top-line seasonality, lower average unit prices and higher than expected freight charges to meet flat panel display demand. As a result, the operating loss was 1.1 percent of revenue, down 1.5 percentage points over the prior quarter, but up 1.8 percentage points year over year.

Third quarter revenue for the personal systems group increased 5 percent, hitting $5 billion, up from $4.8 billion in the same three months a year earlier. During the quarter, unit volume grew 16 percent, year-on-year, fueled by sales of notebooks, which climbed 54 percent.

The notebook business continued to be profitable in the quarter, said HP, growing revenue 27 percent, compared to the same three months in 2002 and gaining 1.4 percentage points of share in sequential quarters, said the company.

'Our challenge in the personal systems business continues to be desktop, particularly in the U.S., where reduced volumes due to seasonality, and in some cases, our own overly aggressive pricing actions, negatively impacted gross margins,' said Carly Fiorina, CEO. 'We've already taken corrective pricing actions, and will return this business to profitability in Q4.'

HP's largest business segment, its imaging and printing business, enjoyed a 10 percent revenue increase in the third quarter, ended July 31, hitting $5.2 billion, up from $4.8 billion in the third quarter of last year. Printing supplies notched revenue growth of 16 percent over the same three months a year ago.

Operating profit in the imaging and printing segment, however, declined to $739 million in the third quarter, down from $851 million in the same three months the previous year. The drop was the result of top-line seasonality, product transition costs and increased marketing and sales investments, said HP. Operating profit margin for the segment dropped 380 basis points, to 14.1 percent of revenue, compared with 17.9 percent year-on-year.

During the third quarter, HP's revenue in the Americas grew 1 percent, to $8.2 billion, compared with the same three months in 2002, and represented 47 percent of total company revenue, which climbed 5 percent, to $17.4 billion, compared with $16.5 billion in the third quarter last year.

HP moved into the black in the third quarter, reporting net profit of $297 million, compared with a net loss of $2 billion in the third quarter of 2002. Excluding $403 million in one-time charges, the company recorded operating earnings of $858 million, up 61 percent from the $533 million reported in the same quarter a year ago. Excluding charges, third quarter net earnings were $700 million, compared with a net profit of $420 million year over year.

Fiorina, who said HP 'expected to deliver a strong fourth quarter, with every one of our businesses profitable,' pointed to an estimated fourth quarter sequential revenue growth of between 8 percent and 10 percent, or $18.8 billion, to $19.1 billion.

HP reported it would reduce its worldwide workforce of 140,000 by 1,300. This action follows cuts of 3,500 announced in the previous quarter.

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