H-P, Gateway Warn on Earnings

Friday, January 12th 2001, 12:00 am

By: News On 6

SAN JOSE, Calif. (AP) â€” With demand for personal computers weaker and the economy worse than expected even a month ago, profits are shrinking at industry leaders Hewlett-Packard Co. and Gateway Inc., which is slashing thousands of jobs.

Both companies issued earnings warnings Thursday and said they had been surprised by how quickly technology spending and other economic factors turned against them.

``Frankly, it was like somebody turned the lights out,'' Hewlett-Packard CEO Carly Fiorina said.

The situation was more grim for San Diego-based Gateway, which said it would cut 3,000 jobs, more than 10 percent of its work force, to increase profitability.

The company's fourth-quarter earnings missed Wall Street expectations by a quarter per share, and Gateway said low worldwide PC demand and low prices are expected to last at least through the first half of this year.

``For now, we need to prioritize our business initiatives against the present economic realities,'' CEO Jeff Weitzen said. ``Tough times call for tough decisions.''

HP shares were down $1.50, or 4.6 percent, to $30.88 on the New York Stock Exchange in afternoon trading Friday. Gateway was down $2.08, or 9 percent, to $20.82.

Fiorina said she and other high-tech leaders who met with President-elect Bush in Texas last week were amazed at how low December orders were.

``They're not alone in having thought that maybe the economic slowdown was going to look a bit more like a soft landing,'' said Daniel Kunstler, an analyst who follows Hewlett-Packard for J.P. Morgan H&Q. ``Things simply started sliding faster than they anticipated ... It looks more like an economic rather than a supply-specific or execution thing.''

For its fourth quarter, Gateway lost $94.3 million, or 29 cents per share, on revenues of $2.37 billion. Excluding a charge related to its investments in technology companies, Gateway earned $37.6 million, or 12 cents per share.

Analysts had already lowered expectations after a warning by Gateway on Nov. 29, and were expecting earnings of 37 cents per share, according to a survey by First Call/Thomson Financial.

``When we pre-announced on Nov. 29, we had expected some continued ramping of demand in December based on past experience, but that did not materialize,'' Weitzen said. ``Softer sales have caused inventories of our competitors to swell, and have touched off an aggressive pricing environment that will have negative consequences for the PC sector for the next six months.''

Weitzen said the holiday season was one of the worst the industry had ever seen, and he noted several factors that didn't go his company's way. For one, because Christmas fell on a Monday and United Parcel Service doesn't deliver on Sundays, Gateway sent more PCs to stores than usual to meet the needs of last-minute shoppers. With demand low, many of those PCs are still sitting on store shelves.

That will contribute to a 10 percent drop in revenue in the current quarter and just 3 percent revenue growth in all of 2001, John Todd, Gateway's chief financial officer, said with a sigh on a conference call with analysts.

Gateway also reduced earnings expectations for 2001 to $1.44 per share, excluding one-time charges. Analysts were expecting $1.88 per share.

Gateway said employees would be laid off over the next six weeks in divisions around the world. Specifics about which sites would be hit were not announced, but 1,300 of the positions being cut are in procurement, technical support and manufacturing; 1,700 are in retail and sales.

Hewlett-Packard, the Palo Alto-based computer, printer and server giant, said it expects to earn between 35 and 40 cents per share this quarter. Analysts surveyed by First Call/Thomson Financial were predicting 42 cents per share, up from 40 cents in the same quarter last year.

Before Thursday's announcement, HP had said it expected revenue to grow by 15 percent to 17 percent in fiscal 2001. Faced with questions from analysts skeptical about that figure in December â€” after holiday season computer sales were weaker than expected â€” Fiorina insisted it was a reasonable target because of HP's balance across several product lines and overseas markets.

However, HP would not address its full-year expectations Thursday. First-quarter earnings are due Feb. 15. Another important PC maker, Dell Computer Corp., also will release earnings that day.

These are especially bad times for PC makers because the market is somewhat saturated, with consumers having few reasons to upgrade if they already have a computer. Plus, the gloomy economy has made many people even more wary of big purchases.

Even so, computer industry analyst Tim Bajarin, president of Creative Strategies Inc., expects that in a few months, consumers will want more powerful PCs to take advantage of better streaming media content and a new upgrade to Microsoft's operating system, known as Whistler.

``Barring any major recession,'' he said, ``we should see something of an upturn in the PC industry during the second part of the year.''

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AP Technology Writer Matthew Fordahl contributed to this report.

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On the Net:

http://www.hp.com

http://www.gateway.com