A Tale of Two PC Makers
Posted on: November 22, 2008 - Email Article - Printable Version
PC makers, Hewlett Packard [HPQ: 52.42, 0.00 (0.00%)] and Dell [DELL: 14.26, 0.00 (0.00%)] posted earnings earlier this week partially eroding concerns that PC manufacturers will follow suit with their other IT counterparts in the spending downturn. Intel’s remarks last week did not bode well as they tapered down revenues by over $1 billion due to softening demand. It is surprising to see the PC makers coping well in a time where electronic spending is poised to decline as the jobless rate continues to increase leaving people rationing their money over the essentials.
Hewlett Packard Impresses
HP came out six days ahead of their scheduled earning day to tell investors their fourth quarter results will impress, giving hope that PC makers could weather such an economy. HP posted a 19% or a $5.3 b
illion increase in revenues over last quarter. Management stated that revenue grew about 5% excluding any income from Electronic Data Systems who HP acquired earlier this year $3.88 – $4.04 with revenues of $127.5 billion to $130 billion. HP’s diversified revenue base that encompasses desktops, laptops, servers as well as printers and printer supplies. The acquisition of EDS will also help the giant weather any storms in the future, although the printer supplies business provided HP with the necessary revenues to beat expectations accounting for over a third of revenues. HP’s success unfortunately could not be mirrored by its rival, Dell.
Dell Disappoints
Dell’s earnings were lackluster in relation to their largest competitor. Missing revenue projections by almost $1 billion, Dell reported an EPS of $0.37 on a 5% drop in net income and a 3% drop in revenues. Dell’s earnings were choppy as they continued to restructure their supply chain and gain market share in the consumer PC space. Although the company missed revenues, it saw the consumer segment
rebound from a loss and also experienced $123 million in sales from the Asia consumer division. It is obvious that Dell is struggling and may have to expand into other products to diversify itself as spending is cut further by both corporate customers and consumers alike.
The earnings release of these two tech titans paired with Intel [INTC: 21.17, 0.00 (0.00%)] adjusting guidance makes me weary to recommend the computer manufacturers right now. In the long term all three will do very well, however in the short and medium term they all have to battle declining consumer confidence and declining share prices. I would look to enter Intel or HP as they become cheaper and offer a great bang for the buck with their diversified revenue streams. Although I like Dell’s products, I feel like they are weakest of the three investments on the table. Keep in mind that although HP beat earnings, this does not mean consumers will buy more PCs contrasing Microsoft’s [MSFT: 29.29, 0.00 (0.00%)] views this past quarter. HP’s printer business helped it’s earnings out greatly, starkly contrasted by Dell who still lacks a diversified business portfolio. Do not expect anything stellar from this group going forward, but do stay alert for buying opportunities in this prolonged bear market.
- Santosh Sankar
Disclosure: The mutual fund the author is associated with is long INTC.
The Following Stocks Were Mentioned In This Article: DELL, HPQ
Comments
Hi, I really like your thoughts and ideas and wish to exchange ideas.HP’s success unfortunately could not be mirrored by its rival, Dell. Dell Disappoints. Dell’s earnings were lackluster in relation to their largest competitor.
Dell needs to evaluate their positioning and product offering. Just like we as investors diversify our portfolios, businesses need to do the same. Dell needs to find another product offering to help rekindle some sort of growth. It is difficult to say what they should offer, but it is evident they need to offer something.