H-P Hits Target, Plans to Cut 2% of Jobs

Updated from 5:02 p.m. EDT

Tech bellwether Hewlett-Packard(HPQ Quote) met analysts' revenue and profit estimates in its second-quarter results, but falling PC sales crimped the firm's revenue.

H-P reported revenue of $27.4 billion, down 3% from $28.3 billion in the same period last year, but in line with analysts' expectation. Adjusted for currency, the firm's revenue grew 3% year over year.

The Palo Alto, Calif.-based company, which was one of TheStreet.com's top tech picks for 2009, earned 70 cents a share, down from 80 cents in the prior year's second quarter.

On a non-GAAP basis, H-P earned 86 cents per share, which included a 2 cent charge related to a patent dispute, but was in line with Wall Street's estimate. The company earned 87 cents a share in the same period last year.

H-P, which competes with IBM(IBM Quote) and Sun Microsystems(JAVA Quote), enjoyed almost 100% year-over-year growth in its services revenue, which came in at $8.5 billion, thanks to last year's acquisition of services giant EDS.

"Our services business continued to deliver strong profitability with an increased deal pipeline and the EDS integration tracking ahead of schedule," said H-P CEO Mark Hurd in a statement.

The firm's hardware business, however, has felt the effects of the economic downturn. H-P's Enterprise Storage and Servers (ESS) division reported revenue of $3.5 billion, down 28% year over year. Software sales also slowed, and revenue declined 15% to $880 million.

As predicted by some analysts, H-P's PC sales performed relatively well in an unforgiving spending climate, and the firm's Personal Systems Group saw flat unit shipments. PSG sales nonetheless slipped 19% compared to the prior year's quarter.

The company expects that its third-quarter revenue will be flat to down 2% sequentially, just below analyst expectations of $27.49 billion. Excluding charges, H-P forecasts earnings of 88 cents a share to 90 cents a share, in line with Wall Street's estimate.

During a conference call after the market close, Hurd spoke again about H-P's services business. "The services business more than doubled profits to $1.2 billion, and is now our largest segment," Hurd said.

Also during the call, H-P's CFO, Cathie Lesjak, revealed plans to cut 2% of the company's workforce. The cuts follow restructuring efforts announced by H-P last year and are expected to save $500 million annually beginnning in 2012. "These actions will be implemented over the next 12 months," she said.

H-P had previously forecast annual savings of $2.5 billion following its integration of EDS.

Shares of H-P dipped $1.68, or 4.6%, to $34.90 in extended trading Tuesday.