Fiorina Cutting Another $500M

SAN FRANCISCO--Hewlett-Packard plans to cut another $500 million in costs as a result of its merger with Compaq Computer, but the company kept its revenue and profit outlook unchanged because of "tepid" IT spending, CEO Carly Fiorina said during a presentation to securities analysts here.

HP plans to cut $3 billion in costs during fiscal 2003, which began Nov. 1, up from a previous goal of $2.5 billion by the end of 2004. The company exceeded its cost-cutting target by 30% during the second half of 2002, Fiorina said, and it has introduced one pay plan for all of its salespeople.

"We're not going to raise guidance today because the economy remains uncertain, and we want to make sure we're not getting ahead of ourselves," Fiorina said. "We're not yet willing to call a turnaround in the economy."

She said she expects IT spending to rise 2% to 4% in 2003, and expects HP's revenue to rise by the same amount. During fiscal 2002, HP reported revenue of $56.5 billion, an 11% year-over-year decline. HP expects 2003 gross profit to be 25% to 27% of sales, compared with 25.5% in '02. "We think there continues to be an uncertain market, and tepid IT spending," she said.

HP CFO Bob Wayman told analysts that HP's enterprise systems group, which makes servers and data-storage products, will be the hardest to make profitable. HP's move away from PA-RISC and Alpha microprocessors, and toward Intel's Itanium chips, is contributing to operating losses. "These transitions are costing us money," he said.

HP said Tuesday it had reached a three-year deal to sell the Internal Revenue Service as much as $100 million worth of desktop and notebook PCs. Separately, the company said it's signed service contracts valued at more than $920 million in recent months.

Also Tuesday, the company announced that executive VP Jeff Clarke, who helped lead HP's merger integration, will take responsibility for corporate procurement. Executive VP Mike Winkler, who had held that job, will be chief marketing officer. The changes are part of a redistribution of responsibility after the departure last month of president Michael Capellas, who left to become chairman and CEO of WorldCom Inc.