Hewlett-Packard Co slashed its profit outlook as it boosts spending to resuscitate its troubled services business.
The sluggish consumer PC market and the impact of Japan's earthquake are also expected to hurt the world's largest technology company's profits for the rest of the year.
The company, whose shares fell more than 7 percent, released its results a day before it originally planned after an internal memo from Chief Executive Leo Apotheker warned his executives of another tough quarter ahead and asked them to minimize all hiring.
HP wants to expand consulting and other more profitable services, while de-emphasizing lower-margin services such as fixing computers, Apotheker told Reuters in an interview.
HP's executive vice president Ann Livermore, who runs the company's enterprise business, will now take over the services unit. The previous chief is leaving the company.
The company is, meanwhile, looking for a permanent replacement and is restructuring the reporting structure within the group.
The revamping of the unit is expected to be completed very quickly, Apotheker said.
Apotheker, who took the helm in September, wants to boost earnings by pushing into sectors such as cloud computing, helping companies to revamp their data centers.
Investors are looking for signs of progress on that strategy.
HP has been known historically for consistency, said Gleacher & Co analyst Brian Marshall. Now they are known for inconsistency.
The leaked memo from Apotheker stoked concerns that the company is worse off than feared. It is already grappling with new rivals from Cisco Systems Inc to Oracle Corp in the server market, limp consumer spending on PCs, and a potentially costly expansion into cloud computing.
NO JOB CUTS
We will manage our costs very prudently ..., including our salary costs, Apotheker said. We want to create enough resources to expand our business.
The company is not planning any job cuts but will watch its headcount, he added.
HP cut its outlook for full-year profit, excluding items, to at least $5.00 per share from previous outlook of $5.20 to $5.28 and cut full year revenue outlook from $130 billion to $131.5 billion to new forecast of $129 to $130 billion.
Revenue in the fiscal second quarter ended April 30 rose to $31.63 billion, up 3 percent from the previous year and slightly above the average analyst estimate of $31.52 billion, according to Thomson Reuters I/B/E/S.
The strength in the quarter was driven by its commercial and enterprise businesses as businesses continued to spend on technology.
The company reported net income of $2.3 billion, or $1.05 a share, up from $2.2 billion, or 91 cents a share, a year earlier.
Excluding items, HP earned $1.24 a share, better than the average analyst estimate of $1.21 a share.
Its shares were down 7.2 percent at $36.95 in early Nasdaq trading.
(Additional reporting by Jennifer Saba, and Angela Moon; Editing by Derek Caney)