Hewlett-Packard CEO Carly Fiorina is optimistic going forward with the company’s outlook for 2003.
Speaking for the first time since the Compaq merger, Fiorina, new company president and former Compaq CEO Michael Capellas and COO Bob Wayman brought forward their best financial estimates before a panel of analysts.
HP Tuesday said it expects overall revenues in the second half of 2002 to reach between $35 billion to $36 billion. That would put its year-end revenues somewhere between $72.8 billion and $73.8 billion.
The Palo Alto, Calif.-based company also said it sees growth of 4 percent to 6 percent in fiscal 2003 and then 7 percent to 9 percent in fiscal 2004.
HP also said that it sees gross margin in the second half of fiscal 2002 of 25 percent to 26 percent. In fiscal 2003, HP sees gross margin of 25 percent to 26 percent and in fiscal 2004 sees gross margin of 25 percent to 27 percent.
The company said that it sees operating margin of 3.5 percent to 5 percent in the second half of fiscal 2002. Fiorina called the adjusted numbers low but “achievable.”
Wall Street analysts may lower their earnings estimates for the company based on the new guidance.
The computer and printer maker said it would cut 10,000 jobs by November 1 and another 5,000 jobs next year, for a total of about 10 percent of its combined workforce. HP said it is also under a company-wide salary freeze until 2003.
“We are moving faster and achieving more,” she said Fiorina. “We think moving faster on headcount reductions is good for employees, particularly when it reduces uncertainty.”
Fiorina said the combination of early retirements and involuntary layoffs should help HP hit $500 million in cost savings by the end of fiscal 2002 and $2.5 billion by the end of 2003. For 2004, the news gets even better. The company is now estimating $3 billion in cumulative cost savings. HP’s initial target for total savings 2004 was $2.5 billion.
“It’s amazing how much you can get done when you don’t have to count votes,” said Capellas. “It’s absolutely extraordinary.”
Capellas said the merger now makes a formidable rival to IBM in the areas of computers, servers and services. HP’s market share is now $78 billion compared with IBM’s $86 billion.
The company’s PC business will continue to lose money in the second half of 2002. For example, HP’s home PC business is expected to lose 18 percent, business PCs dipping 8 percent and its Unix and NT PCs are expected to lose a combined 17 percent. The combined amount of the company’s PC business makes up 4.9 percent of HP’s overall revenue.
The company also said printer revenue should grow faster than income from any other division, at 10 percent in fiscal 2003 and 10 percent in fiscal 2004.
“How can we out Dell, Dell – out IBM, IBM?” asked HP VP of worldwide operations Mike Winkler. “When we look at the capabilities of HP, we see that they have the power and the true competitive advantage come from the horizontal processes that the other.”
The following is a partial breakdown of the outlook for revenue by division for the fiscal year ending Nov. 1, 2002:
* HP sees revenue from enterprise systems, which includes large computers and data storage machines, at $8 billion to $9 billion in the second half of 2002, putting 2002 revenue at $16.6 billion to $17.6 billion, down 14 percent to 19 percent from 2001’s $20.5 billion. It sees fiscal 2003 revenues up 5 percent to 7 percent and fiscal 2004 revenues up 7 percent to 9 percent.
* HP sees revenue from personal systems group, which includes personal computers, at $9.5 billion to $10.5 billion in the second half of 2002, putting 2002 revenue at $21.6 billion to $22.6 billion, down 17 percent to 19 percent from 2001’s $26.8 billion. It sees fiscal 2003 revenue up 0 percent to 2 percent and fiscal 2004 revenue up 5 percent to 7 percent.
* HP sees revenue from its imaging and printing group at $10 billion to $10.5 billion in the second half of 2002, putting 2002 revenue at $20 billion to $20.5 billion, up 2 percent to 5 percent from 2001’s $19.5 billion. It sees fiscal 2003 and fiscal 2004 revenue each up 10 percent.
* HP sees revenue from services at $6 billion to $6.5 billion in the second half of 2002, putting 2002 revenue at $12.3 billion to $12.8 billion, a decline of up to 5 percent from 2001’s $12.9 billion. It sees fiscal 2003 revenue up 4 percent to 6 percent and fiscal 2004 revenue up 7 percent to 9 percent.
The company also said it would consolidate its outsourced manufacturing and squeeze lower costs from its suppliers. HP said the cost cuts will impact five of the company’s top contract manufacturers — Flextronics International Ltd. , Solectron Corp. , Sanmina-SCI Corp. , Celestica Inc. and Jabil Circuit Inc.
Hewlett-Packard said it is now employing a “zero-touch, zero-inventory” model for its outsourced production. Which means HP engineers will design the machines but leave all of the production, assembly and shipping to the manufacturing provider.
Reuters contributed to this report
