Slowing Economy Drags Down Profits at Dell, Hewlett-Packard

Two of the biggest computer makers felt the sting Thursday of a broadening slowdown in the economy as Hewlett-Packard Co.’s fiscal first-quarter net income fell 59%, while Dell Computer Corp. slashed 1,700 jobs, the first layoffs in its 16-year history.

Hewlett-Packard, the Palo Alto computer and printer maker, said it saw no near-term growth in the company’s U.S. personal computer business. “The sudden deterioration in the economy clearly impacted our business,” said Hewlett-Packard Chief Executive Carly Fiorina.

HP said net income slipped to $328 million, or 17 cents a share, compared with $794 million, or 38 cents, a year earlier. Sales in the period ended Jan. 31 rose 2% to $11.9 billion from $11.7 billion, at the low end of forecasts. Profit before one-time items was $727 million, or 37 cents a share.

Analysts polled by First Call/Thomson Financial had, on average, expected earnings of 37 cents a share.

Fiorina said the company is sticking by its projections for second-quarter revenue growth in the low- to mid-single digits, and said the company is not counting on a return to double-digit revenue growth this year.

HP’s shares fell as low as $34.40 in after-hours trading following the report’s release. They had risen $1.96 to $36.35 in regular trading on the New York Stock Exchange before the company issued its earnings report.

Dell also released its earnings results Thursday, which were a penny short of analysts’ expectations.

The company said earnings for its fiscal fourth quarter ended Feb. 2 were $434 million, or 16 cents per share, compared with $436 million, or 16 cents per share in the year-ago quarter.

Excluding one-time charges from job cuts and company consolidation, Dell earned $508 million, or 18 cents per share. Analysts surveyed by First Call/Thomson Financial had pegged Dell’s quarterly earnings at 25 cents per share, before adjusting downward to 19 cents per share when the company warned of a shortfall last month.

Faced with sluggish growth in personal computer sales and an overall slowdown in the U.S. economy, Dell had already cut prices, imposed a hiring freeze, reduced its marketing budget and limited travel expenses.

The layoffs were the first announced job cuts in Dell’s 16-year history. Dell has about 40,200 employees worldwide. The layoffs affect only workers at headquarters in Round Rock, Texas, and in nearby Austin, the company said.

“Continually adjusting our cost structure allows us to extend our leadership in a challenging environment,” said Chief Executive Michael Dell.

Lower PC prices and the maturing market are pushing most of the industry to evolve in a world in which the personal computer will no longer reign as the sole way to get connected to the Internet.

But at Dell, which had 93% of its $28.5 billion in revenue over the last four quarters come from computer sales, executives have been stubborn about looking beyond the PC. The company has focused on growth abroad and opportunities in business services, Internet infrastructure, storage and server markets.

Dell’s revenue for its fourth quarter totaled $8.7 billion, or 1% lower than first expected, but a 28% increase over the $6.8 billion in its fourth quarter of 2000.

For the full fiscal year, Dell posted $31.9 billion in revenue, up 26% from $25.3 billion in 2000.

In after-hours trading, Dell shares slipped 56 cents to $24.44. In regular trading Thursday, Dell shares rose $2.06 to close at $25 on Nasdaq.

Dell’s shares have shown some recovery from a 52-week low of $16.25, but are well off last year’s high of $59.69.