Hewlett-Packard’s second-quarter financials may have been in line with forecasts, but they were troubling nonetheless. A number of analysts predicted that the company might report better-than-expected earnings. Sadly, it did not. HP’s net income for the period fell 17 percent to $1.7 billion, or 70 cents per share. Excluding one-time items, the company earned 86 cents a share, compared with a profit of 87 cents a share in the same period last year. The results include charges of 2 cents a share related to a patent dispute. Sales fell three percent to $27.4 billion. Every division of the company, save one, reported a decline in revenue. The lone highlight, Services, posted an increase, but that was due primarily to HP’s acquisition of EDS. The grim details:

Enterprise Storage and Servers: down 28 percent
Software: down 15 percent
Personal Systems Group: down 19 percent (though it claims the leading market position in PCs in every region)
Imaging and Printing Group: down 23 percent
Financial Services: down 6 percent
Services: up 99 percent

Clearly, the decline in consumer and business spending is weighing heavy on HP (HPQ) and will continue to do so. The company expects third-quarter revenue to be approximately flat to down two percent sequentially. And it says full-year revenue will slip approximately four to five percent from the prior-year period.

UPDATE: During a conference call to discuss earnings, HP’s leadership said the company will sack about two percent of the workforce in the months ahead as it looks to trim costs. 6,400 employees will lose their jobs as a result.

Cost-cutting is one of my favorite subjects. We have quite a bit more to do.”

– HP CFO Cathie Lesjak, Sept. 10, 2008

When Hewlett-Packard (HPQ) CFO Cathie Lesjak said she was fond of cost-cutting, she wasn’t kidding. On Monday HP announced plans to cut 24,600 jobs over the next three years as it digests Electronic Data Systems, the technology services giant it acquired for nearly $14 billion this summer. The job cuts amount to about 7.5 percent of the combined company’s total workforce, and most will come from EDS, whose bloated cost structure was in need of a good trim. HP estimates $1.8 billion in annual cost savings once the three-year program is completed. “I think most of you that follow us know I am a big believer that having the most efficient cost structure directly relates to your ability to scale and grow,” HP CEO Mark Hurd explained to securities analysts.

Incidentally, 24,600 sacked employees is a new record for Mark Hurd, whose first big act as HP’s CEO was a restructuring that eliminated some 15,000 jobs.

[Image credit: jischinger]

Thankfully, it wasn’t nearly so rancorous.

Valued at $13.9 billion when it was first announced, the deal will more than double the size of HP’s consulting and outsourcing business. It will likely do the same to the $16.6 billion in revenue from services the company made in 2007.

When the dust has settled around the merger, HP will be the second-largest provider of consulting and outsourcing services, behind IBM (IBM). But it will take some doing to get there. “It’s a very significant combination,” Gartner’s (IT) Ben Pring said when the deal was announced back in May. “[But] people who are skeptical of big integrations will have a field day around this. It’s putting together two large businesses with two different heritages. It’s going to be a big culture clash.”

And if HP manages to pull it off? Well, as Fiorina would likely tell you, bigger is better if you can do it right.

“It’s somewhat amusing because we’ve seen this play before. I think this is sort of further evidence that HP really does see value at scale basically, at size,” Illuminata analyst Gordon Haff said in May. “One of the things we’ve seen very clearly over the last couple years is that Carly really had the right idea, she just couldn’t execute on it. She wasn’t wrong for saying HP needed to be bigger, effectively,” said Haff. “If (the merger) does go through we’re going to end up with an HP that looks a lot like Carly wanted it to look.”