Hewlett-Packard Has A Long Winter AheadHewlett-Packard Has A Long Winter Ahead

Hewlett-Packard will lose money selling PCs and enterprise systems until well into next year, and sales of servers, software, and storage will grow more slowly than the company as a whole, CEO Carly Fiorina says.

HP's $22 billion-a-year PC business lost $532 million in its last fiscal year, ended Oct. 31, and its $16.5 billion enterprise systems group lost $912 million. HP told securities analysts last week that its PC business should be profitable by the end of April, after a 20% staff cut. Enterprise systems will be tougher: The company wants profit by October, but the group's saddled with money-losing products.

Enterprise systems sales will grow slower than the 2% to 4% annual rate projected for HP overall, Fiorina says. HP is making a major product transition in computer systems, from selling servers based on RISC processors developed in-house to 64-bit systems running Intel Itanium processors. But it still depends on RISC. Computers running HP's PA-RISC, Alpha, and Mips chips produced $5 billion in sales last fiscal year--about 30% of enterprise system sales. The Alpha platform alone will lose $200 million this year.

Fiorina's formula: Cut $3 billion in costs this fiscal year by reducing redundancies and redirecting spending. R&D will emphasize hardware and software to help companies manage IT infrastructure in logical chunks corresponding to parts of a business, rather than individual machines. Says IDC analyst Paul Bugala, "You have a lot of parts supporting one business function. Nothing could be more attractive to a vendor like HP."