Computer hardware maker Hewlett-Packard Co. posted what it called "unacceptable" financial results and reduced its forecast for the current quarter yesterday, triggering a management shake-up and sending the firm's stock -- and helping to send the market as a whole -- into a tailspin.
HP chief executive Carly Fiorina said in an early morning conference call that, while results in the firm's personal computer business were strong, they were more than overwhelmed by weakness in computer server and storage sales to businesses.
The weakness caused the company's fiscal-third-quarter earnings to come in well under Wall Street expectations and sparked a dramatic sell-off in HP shares. The firm's stock closed at $16.95, down $2.57, or 13 percent.
HP's reduced outlook for the current quarter followed a similar warning on Tuesday from Cisco Systems, the giant computer networking firm. And it produced a similar result: a major sell-off on Wall Street, especially in technology-oriented shares, driven by fear that the economic recovery has downshifted or even stalled.
The Nasdaq composite index, which draws much of its value from technology stocks, sank 29.93 points, or 1.7 percent, yesterday to close at 1752.49, a new 2004 low. The Nasdaq is now down 12.5 percent for the year.
The Dow Jones industrial average and the Standard & Poor's 500-stock index each dropped about 1 percent, to 9814.59 and 1063.23 respectively, and both also touched new lows for the year, as continued record high oil prices also dragged down stocks.
Fiorina said on the conference call that, in addition to execution problems at HP, the economy appeared to do a "stutter-step" in recent weeks, leading to a decline in demand.
That stutter-step, however, did not seem to hurt top HP competitor Dell Inc., which reported quarterly results after the stock market closed.
Dell matched analyst expectations with earnings of $799 million (31 cents per share) for the quarter ended July 31, compared with $621 million (24 cents) a year earlier. Among other things, the company credited strong server sales for its performance.
Stephen J. Massocca, head of trading at Pacific Growth Equities LLC in San Francisco, said Dell's earnings report, if combined with an easing of oil prices, could help to least stop the recent market slide, if not produce a rally.
"There are two issues facing the market right now, oil prices and the economic slowdown that took place in June and July. . . . Any indication that the slowdown was shallow and is being reversed will certainly help the market."
Fiorina, meanwhile, said on the conference call that she shared the "frustration" of analysts over HP's performance. And she declared that heads would roll at her firm.
"Although we are satisfied with our performance in personal systems, imaging and printing, software and services, these solid results were overshadowed by unacceptable performance in enterprise servers and storage," she said. "Here, execution issues cost us, and we are therefore making immediate management changes."
Those changes included the firing of HP's head of business sales, Peter Blackmore, as well as Blackmore's U.S. and European deputies. The company said that Michael Winkler, currently chief marketing officer, would take over business sales.
Pierr Johnson, an analyst at John Hancock Advisers Inc. in Boston, which owns about 1.4 million HP shares, according to Bloomberg News, criticized the company for repeatedly failing to meet earnings expectations.
"It's a large company with a lot of moving pieces, and they have not been as adept [as some competitors] at aligning those pieces so they can deliver more dependable results," he said.
HP, locked in a brutal struggle with Dell for both personal and corporate computing business, said server and storage sales to businesses fell 5 percent from the same quarter a year ago and that the unit had an operating loss of $508 million in the quarter.
The firm said net income rose to $657 million (19 cents), up 90 percent. Excluding certain one-time payments, HP said it earned $846 million in the quarter (24 cents), well below the consensus among Wall Street analysts of 31 cents per share.
The company also said softer demand for server and storage products would cut into fiscal fourth-quarter earnings. Analysts had been anticipating earnings of 43 cents per share. HP said per-share earnings would instead be between 35 cents and 39 cents.
Fiorina said in addition to economic weakness, the server and storage units were hurt by a problematic transition to a new supply-chain processing system that caused the company to miss some orders and take expensive measures such as air shipments to fill others.
* The New York Stock Exchange composite index fell 61.54, to 6217.06; the American Stock Exchange index fell 8.89, to 1202.66; and the Russell 2000 index of smaller-company stocks fell 9.53, to 517.10.
* Declining issues outnumbered advancing ones by 7 to 3 on the NYSE, where trading volume fell to 1.4 billion shares from 1.4 billion on Wednesday. On the Nasdaq Stock Market, decliners outnumbered advancers by 2 to 0 and volume totaled 1.61 billion, down from 1.78 billion.
* The price of the Treasury's 10-year note rose $1.88 per $1,000 invested, and its yield fell to 4.25 percent from 4.27 percent on Wednesday.
* The dollar rose against the Japanese yen and fell against the euro. In late New York trading, a dollar bought 110.89 yen, up from 110.81 late Wednesday, and a euro bought $1.2241, up from $1.2214.
* Light, sweet crude oil for September delivery settled at $45.50, up 70 cents, on the New York Mercantile Exchange.
* Gold for current delivery fell to $394.30 a troy ounce from $395.50 on Wednesday on the New York Mercantile Exchange's Commodity Exchange.