Updated from 11:21 a.m. EDT

Investors anxious for guidance on the new, combined

HP

(HPQ) - Get Report

and Compaq got their wish today when the company released revenue targets for the first time since the May 3 close of the deal.

But they may have wished they'd been kept in the dark a little longer. CEO Carly Fiorina jettisoned last quarter's meekly hopeful prediction that the second half of the year could see a "muted recovery" of 2% to 3% growth.

Instead, the company said it expects revenues to fall 5% to 7% from the first half, to around $35 billion to $36 billion.

Visibility is so limited, according to Fiorina, that the company has decided not to give specific earnings estimates. Analysts are expecting earnings of 20 cents in the third quarter and 26 cents in the fourth quarter, according to consensus estimates from Thomson Financial/First Call.

In recent trading investors appeared to take news from HP in stride. The stock was up 0.85% to $19.01.

Among the reasons for today's feeble outlook: HP said consolidations in PC products will depress revenues in the second half.

That will take place against a backdrop of already-sluggish PC sales. Both companies lost market share in PC sales in the first quarter, as hungry competitor Dell scored first-quarter share gains.

Compounding those troubles, HP admits it's now wrestling with inventory backlogs. "We saw a weakening of the consumer PC that fell particularly in the U.S. as we approached the end of our Q2," said CFO Bob Wayman. "There was too much channel inventory going into Q3. So as a result, we will see lower revenues in Q3 in the PC space to get inventories back into line."

In April, Compaq and HP were the two major brands with the highest levels of inventories in retail PCs, according to a report out last week from Robertson Stephens, which cited market research from NPD Intelect. Compaq and HP had a 10.6 weeks and 8.4 weeks' worth of inventory, respectively, both up from the previous month.

The fourth quarter is likely to show some improvement, however. Wayman predicts HP should see a "relatively strong, high-single-digit rebound in revenue growth" in Q4, which normally sees revenue growth of 5% to 6% sequentially as part of a seasonal pattern. "I think we'll generate

that because of the particularly weak Q3 given the inventory adjustments," said Wyman.

Gross margins are expected to be around 25.5%, give or take a percentage point, into the third and fourth quarters.

Looking farther down the road, Fiorina reduced the forecast of 8% to 10% growth in 2003 that she had made last quarter, saying a range of 4% to 6% now looks more likely.

For 2004, she forecast growth of 7% to 9%.

The company's goal is to grow at or above the market growth rate. But there are exceptions, Fiorina said: "Where there's massive product line consolidation, for example in the PC business, you'll see us grow slightly slower than the market in '03."

Indeed, critics have carped that the newly merged company will suffer from being weighted too heavily toward the slow-growing PC business. But in response to an analyst question about whether HP should stay in the PC business at all, Fiorina said it "more than earns the cost of capital. It's a good cash generator."

She added, "The PC business needs to have a competitive cost structure and competitive business model." When HP first announced the merger last September, it said it aimed to wring $2.5 billion in cost savings.

HP can claim some progress on that front: At today's meeting, Fiorina said the company is already ahead of schedule with cost-cutting, expecting to save $500 million in costs by the end of this fiscal year, which ends Oct. 31. HP aims to slash costs by $2.5 billion in fiscal year 2003 -- which she said is a year ahead of initial projections -- and $3 billion in fiscal year 2004.

As part of its cost-cutting drive, HP said today it will speed up a previously announced head count reduction, cutting its payroll by 10,000 by the end of this fiscal year. Another 5,000 employees will be cut in fiscal year 2003.

Many of those reductions, which are intended to eliminate overlapping jobs at HP and Compaq, will take place through a voluntary early retirement program for which 9,000 employees are eligible, according to Fiorina.

At the same time, the company also plans to hire new employees for its imaging and printing and services lines of business, both areas that help to compensate for the sleepier PC division. HP's printer franchise is estimated to account for more than 90% of fiscal year '02 profits.

Even it's facing pressure, though. Only two weeks ago, Dell's CEO reportedly said he was mulling over a push into the printer business -- a worrying pronouncement, given Dell's ability to wrest away market share from competitors.

For now, in light of the gloomy near-term outlook for HP, it looks like even Fiorina will be doing some belt-tightening. The CEO said she wouldn't be eligible to receive any salary increase herself until layoffs are finished in 2003 and the company sees "greater clarity in the economic environment."