Shares in Hewlett-Packard Co shed 11% of their value yesterday, plunging $10.62 to $78.37 on the the news that it had closed its disk drive manufacturing operations with immediate effect – at a cost of $150m before tax – and that orders were slowing (CI No 2,953). HP doubts it will make third quarter earnings estimates of $1.10 per share now. The news promopted a general unloading of IT stocks which sent other share prices tumbling. HPªs disk debacle would be a deep embarrassment for the compan y were it not that people on Wall Street have such short memories. The thing has to work to spec of course, or there will be red faces all round, we wrote only last October, when the company was trumpeting a new 8.7Gb 3.5 drive that was aimed squarely at the mainframe market, and with which it had had design assistance from EMC Corp (CI No 2,778). EMC was to have used the drive: now it will have to turn to one of the other vendors HP so disparaged last autumn, although it says it was only evaluating the things and had never committed to using them. HP said development of the drivetook far too long and it couldnªt justify the continued levels ofinvestment required to keep the project alive. HP is one of the most successful of the world ‘s big computer companies because it addresses problems before they start to fester, and it has bitten the bullet this time because market share has been declining in a tough environment, but it says it is in talks to license the technology after failing to find an outright buyer for the business. The 1,680 people that work at the division will be offered jobs at other operations in Boise, Idaho, and Penang, Malaysia. It will also offer severance packages to employees that choose to leave. The pre-tax charge is for inventory and other asset adjustmentsas well as severance incentives. It will now concentrate its storage efforts on tape back-up, recordable optical disk drives and optical and tape libraries. As to the size of the closed div ision, it describes it only as relatively small, but it appears to be about $700m. The closure will add to the decline in order growth, it said.
