The technology bellwethers both shared bad news about near-term profits and their forward-looking outlook after the market's close tonight. Gateway will cut jobs in the first quarter, while Hewlett-Packard is shying away from updating its full-year guidance amid economic uncertainty.

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By Dave Marino-Nachison (TMF Braden)
January 11, 2001

"A continued deterioration of worldwide PC demand and increasing pricing pressure" hurt fourth-quarter financial results at bovine boxmaker Gateway (NYSE: GTW), which reported its numbers after the market's close tonight. "Both are expected to continue at least through the first half of this year," the company said in a statement.

Computing and imaging products maker Hewlett-Packard (NYSE: HWP), meanwhile, said "worsening economic conditions and a deceleration in corporate and consumer IT spending in recent weeks" led the company to believe it won't meet market expectations when it reports fiscal first-quarter (ended Jan. 31) results.

"It's clear there's been a significant change in market conditions in recent weeks," said Hewlett-Packard Chairman and CEO Carly Fiorina. "Consumer spending in the U.S. has been below even our own conservative estimates and our enterprise customers -- responding to the growing economic uncertainty -- have become increasingly cautious about IT spending. We believe conservative growth assumptions are appropriate near-term."

Gateway turned in EPS of $0.12 not counting a previously announced pre-tax charge of $187 million to write down floundering investments. (Wall Street was looking for $0.37.) Including that charge, the company's loss for the quarter was $94.3 million, or $0.29 per share. Revenues were $2.37 billion. The company's figures were well off the numbers it forecast in a late-November warning. "We had expected some continued ramping of demand in December based on past experience, said CEO Jeff Weitzen, "but that did not materialize."

Gateway's first warning came at a time when most of the PC market players -- Apple (Nasdaq: AAPL), Dell (Nasdaq: DELL), and Intel (Nasdaq: INTC) among them -- were all spewing bad news. (For more information on the sector, check out our Computer Hardware InDepth page.)

Gateway now says it will cut its worldwide workforce by 10% in Q1, which will lead to a $50 million pretax charge. The company also revised its already-lowered 2001 guidance, pointing investors toward pre-charge full-year revenue growth of 3% and operating income growth of 6%.

At Hewlett-Packard, the outlook for fiscal Q1 now looks like EPS of $0.35 to $0.40. Wall Street was looking for $0.42. The company expects Q1 revenue growth guidance of low- to mid-single-digits, said Fiorina, "and we're not counting on improvement during the first half of our fiscal year ending April 30." She said gross margins should be "at the low end of the 27.5% to 28.5% range... with expense growth in line with revenue growth."

Fiorina refrained from updating full-year guidance "given rapidly changing market conditions and increasing economic uncertainty, at home and abroad."

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