HP's Q3 Loss Reaches $2B, Revenue Down 11%

By Jeff Malester On Sep 16 2002 - 6:00am

Putting the blame on a weak economy, rather than fallout from its nearly $19 billion merger with Compaq Computer back in May, Hewlett-Packard reported a $2 billion net loss for its fiscal third quarter. A year earlier, the combined operations of HP and Compaq would have resulted in a $116 million loss in the third quarter.

Excluding items, primarily related to the merger, pro forma net earnings reached $420 million in the third quarter, a 31 percent increase over the $320 pro forma earnings racked up in the year-ago period.

Third quarter pro forma revenue dropped 11 percent, to $16.5 billion, compared with a pro forma $18.6 billion in the same three months in 2001.

Overall company pro forma operating margin was 3.2 percent in the third quarter, compared with 4.5 percent sequentially and 1.9 percent year over year.

HP's consumer PC, notebooks and handhelds Personal Systems Group had combined revenue of $4.8 billion in the third quarter, ended July 31, down 18 percent sequentially and 19 percent year over year from the $5.9 billion recorded in the same period in 2001.

Consumer PC revenue was down 31 percent sequentially and 20 percent year over year. The company said the decreases were due to "poor macroeconomic conditions, intense price competition and post-merger product transitions."

The operating loss for the Personal Systems Group in the third quarter reached $198 million, down from a $372 million loss a year ago.

Combined company operating margin in the computer segment was a negative 4.2 percent, compared with a negative 2.8 percent last quarter and a negative 6.4 percent year over year. Margin improvement year over year reflects, in part, advances in HP's direct business, which represented 26 percent of PC shipments in the Americas, said the company.

"We're hitting all our integration milestones and are on track to meet our second-half targets," said Carly Fiorina, chairman/CEO.

HP said it was on target for synergies of $500 million in 2002, $2.5 billion in 2003 and $3 billion in 2004. It also reported completion of nearly 4,740 job reductions and said it remains on schedule to meet 10,000 target reductions by the end of fiscal 2002. HP is estimating $17.4 billion in revenue for its fourth quarter.