Are Job Cuts the Real Catalyst for H-P’s Future?

Hewlett-Packard (NYSE:HPQ) shares jumped after the company beat earnings expectations for the second quarter. Earlier in the day, Wednesday, shares had fallen after the company said it planned to cut at least 27,000 jobs by October 2014 as its printers, data-center equipment, and services businesses continue to pull it down.

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Profit before some costs was 98 cents a share, compared with average estimates of 91 cents per share, while sales fell 3 percent to $30.7 billion, beating projections of $29.9 billion.

However, HP has been struggling in the hardware market against competitors like Apple (NASDAQ:AAPL) and is also losing clients in its enterprise business, and it kept its projections for the coming months fairly low. It estimated that for the current quarter, profit excluding certain items will be 94 cents to 97 cents a share for the period ending in July, below the $1.02 average of analyst estimates. It didn’t provide a third-quarter sales forecast, but analysts are expecting a 3.1 percent decline to $30.3 billion.

HP said revenue for its imaging and printing group declined 10 percent in the second quarter year-over-year, while the enterprise servers, storage and networking business fell 6 percent. Services revenue declined 1 percent year-over-year.

A Closer Look: Hewlett-Packard Earnings Cheat Sheet>>

Chief executive Meg Whitman has promised a restructuring effort that reduces costs and reversing the sales slump. She insists the company needs to make its products and services more competitive and spend more on research and product development. The company projects the job cuts to save $3.5 billion annually. Most of the job cuts are expected to come in the enterprise services business, which competes with IBM (NYSE:IBM), among others, for managing companies’ IT operations.

“We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” Whitman said in a statement on Wednesday. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.”

Shares are up only 6% after being up over 10 percent in trading at $22.53.

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