Friday, January 12, 2001
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Posted on: Friday, January 12, 2001

H-P, Gateway expect sharply lower profits

Associated Press

SAN JOSE, Calif. — A slowdown in technology spending has resulted in sharply reduced profit outlooks at Hewlett-Packard Co. and Gateway Inc., which said yesterday it would cut 10 percent of its 21,000-member work force.

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

Gateway, which also posted fourth-quarter earnings that fell a hefty 25 cents per share short of Wall Street expectations, said low worldwide PC demand and low prices are expected to last at least through the first half of this year.

"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."

The job cuts were necessary to try to increase revenue growth and profitability, said Jeff Weitzen, Gateway’s president and chief executive.

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

Weitzen said the holiday season was one of the worst the industry had ever seen.

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 computers. Plus, the slowing economy has made many people even more wary of big purchases.

Even so, 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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