UPDATE – HP/COMPAQ – Fiorina: Most layoffs will be done by November

Hewlett-Packard Co. (HP) will finish its planned 15,000 layoffs by the end of its 2003 fiscal year, with 10,000 of those layoffs completed by November of 2002, Chairman and Chief Executive Officer (CEO) Carly Fiorina said Tuesday in her opening address at a daylong meeting with financial analysts in Boston.

HP continues to believe cutting 15,000 positions is the “appropriate” reduction needed following its acquisition of Compaq Computer Corp., Fiorina said.

She also said HP is pushing forward by a year the time frame in which it intends to realize its promised $2.5 billion in cost savings stemming from the acquisition. That savings will now be attained in HP’s 2003 fiscal year, which ends Oct. 31, 2003, Fiorina said.

“Fundamentally, what you will hear today is that we are moving faster and achieving more,” she said.

As many positions as possible will be eliminated through voluntary departures, a method Fiorina acknowledged is more costly for HP but which she said will be in the company’s long-term best interests. In the U.S., 9,000 employees have been offered enhanced early retirement packages, Fiorina said.

HP also continues to hire in high-growth segments of its business, including its imaging and printing and services divisions, she said.

In her early remarks, Fiorina discussed compensation plans for her and former Compaq CEO Michael Capellas, who is now HP’s president. During his proxy campaign to defeat HP’s acquisition of Compaq, deal opponent and former HP board member Walter Hewlett criticized the company’s apparent intention to reward its top executives with hefty incentive packages following the deal’s completion.

There will be no raises for her and Capellas until at least 2003, Fiorina said Tuesday. HP and Compaq salaries have been frozen for “some time,” she said, and HP needs to finish its headcount reductions and see “a lot greater clarity on the economic environment” before considering boosting executive pay.

“We have reaffirmed that no one will have an opportunity for an increase until all our employees are eligible,” she said.

Taking the stage after Fiorina, Capellas offered a rundown on HP’s business units. The PC market remains depressed, and HP anticipates its PC unit revenue will stay flat or show only minor growth in 2003 before rebounding to 5 percent to 7 percent growth in 2003, he said. Revenue from the unit will likely drop from US$12.1 billion in the first half of HP’s 2002 fiscal year to $9.5 billion to $10.5 billion in the second half. Capellas’ figures are pro forma, combing results from the prior operations of HP and Compaq.

HP’s imaging and printing business will be its most lucrative, with anticipated revenue of $10 billion to $10.5 billion in the second half of 2002 and 10 percent growth forecast for both fiscal years 2003 and 2004, Capellas said.

HP anticipates a 5 percent to 7 percent sequential revenue drop from its second quarter of this year to the third, driven by poor PC results, Chief Financial Officer Bob Wayman said. Weak consumer PC sales in the second quarter led to an overstocked channel, he said.

Tuesday marks the one-month anniversary of the new HP, Capellas noted. The company’s executives appear to be still feeling the effects of their nine-month battle to win approval of the acquisition: References to the Hewlett-led shareholder fight dotted their morning remarks.

“It’s amazing how much you can get done when you don’t have to count votes. It’s extraordinary,” Capellas said at the start of his presentation.

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