Fiorina Vows HP Earnings Improvements

"The third quarter is always tough, but we should have done better," she said.

Fiorina said in a conference call following the earnings release Tuesday that IT spending is stabilizing but continues to lag the overall economy.

She cautioned that Europe remains a problem, but elsewhere in the world, such as in the United States, IT spending seems to be stabilizing.

The weakness in HP's third quarter also caused an acceleration in layoffs in the Enterprise Systems Group with 2,000 jobs cut during the quarter rather than the anticipated 1,200, Fiorina said.

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HP reported net earnings of $297 million or 10 cents per share compared with a loss of $2 billion or 67 cents per share for the year earlier period. Sales reached $17.3 billion for the period compared with $16.5 billion for third-quarter 2002.

HP's personal systems business and enterprise systems business were a drag on the vendor's third-quarter earnings. Personal systems revenue totaled $4.97 billion with an operating loss of $56 million. In the second quarter, HP's PC business recorded a profit of $21 million.

Fiorina blamed the loss in part on a double-digit, year-over-year decline in commercial desktop revenue. She said that while notebooks remain a bright spot, the personal systems business was hurt by too aggressive pricing by HP on some PCs. She said the company was taking corrective action.

"Our objective is not to claim bragging rights to the No. 1 position across all [PC] segments quarter after quarter," she said. "Our objective is to go after profitable growth."

In enterprise systems, HP's midrange and low-end Unix server business was weak, contributing to a $70 million loss for the period ended July 31. HP's enterprise systems business had a loss of $7 million in the second quarter.

HP has a broad spectrum of channel incentives to boost sales of its HP 9000 Unix server line during the fourth quarter. The company is offering solution providers an extra 4 points of discount during the period ending Oct. 31 on 9000 server sales and added bonuses for increased enterprise storage sales.

After the announcement, HP shares fell 11 percent, or $2.36, to $19.75 in after-hours trading.