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HP hikes third-quarter earnings outlook, takes $8-billion charge

In this May 13, 2011 photo, Hewlett Packard computer boxes on display at Micro Center computer store in Santa Clara, Calif.

Paul Sakuma/AP

Hewlett Packard Co. raised its third-quarter earnings forecast on Wednesday and said it was writing down the value of its services business by $8-billion (U.S).

The world's No. 1 personal computer maker also said more employees than expected were taking early retirement and it was implementing a workforce reduction program faster than expected. Because of this, it raised its estimate of a pre-tax restructuring charge to as much as $1.7-billion.

HP said it now expects third-quarter earnings, excluding one-time items, of about $1.00 per share, compared with analysts' average estimate of 97 cents, according to Thomson Reuters I/B/E/S.

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HP previously forecast earnings of 94 cents to 97 cents per share. It did not say why it was raising its outlook.

The company's shares gained 2.5 per cent to $19.44 in mid-morning trading.

"Everybody was expecting them to miss the quarter. Now they said they are going to beat their forecast. That's why the stock is up," said Shaw Wu, an analyst with Sterne Agee.

HP said it did not expect the writedown in the services business to result in "any future cash expenditures or otherwise affect the ongoing business or financial performance" of the segment.

The company, which announced major job cuts in May, said it now expects a pre-tax restructuring charge of between $1.5-billion and $1.7-billion, up from a previous estimate of $1-billion.

HP said in May that it planned to cut about 27,000 jobs, or 8 per cent of its workforce, over several years in an effort to save up to $3.5-billion annually.

The company has been trying to move past the internal upheaval it experienced in 2011, including the departure of two chief executives. Meg Whitman, a veteran Silicon Valley executive who took the top job last September, has been trying to turn the company around. Whitman has said she plans to boost spending on research and development, especially in printing and PCs, with the savings from the cost cuts.

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"They're taking positive steps, but it's not over yet," said Mr. Wu. "They still have a lot to do. You can't do everything at once. If you do that, you end up killing the patient."

HP also said Mike Nefkens will head HP enterprise services on an acting basis, succeeding John Visentin, who the company said was leaving to pursue other interests. Nefkens is currently general manager of HP enterprise services n Europe, Middle East and Africa (EMEA).

HP has been staving off slowing demand for personal computers by moving aggressively into helping corporations manage hardware, software, and networking and storage. But in these areas it has to cope with stiffening competition from the likes of Dell Inc. and International Business Machines.

According to its most recent 10-K, services accounted for about $42-billion in annual revenue, or a third of HP's overall revenue.

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