Dell’s results may be good news for H-P
SAN FRANCISCO (MarketWatch) — Dell Inc.’s shares headed south Wednesday on results that raised doubts about the PC maker’s ability to consistently grow profits while chasing higher-margin businesses.
But the earnings report from Dell (US:DELL) also suggests that the hard disk-drive shortage that has hurt the computer market may not be as severe as many feared. One analyst said that bodes well for Hewlett-Packard Co. (US:HPQ), which is scheduled to post its own results after the closing bell Wednesday.
Dell shares were last trading down about 6.4% at $17.04. H-P shares were last down about 1.4% at $28.94.( Dell Vostro 3350 Battery )
Late Tuesday, Dell reported results for the quarter ended in January that slightly missed Wall Street’s estimates. The company also issued a revenue outlook that fell below expectations. Read full coverage on Dell's earnings.
Dell’s numbers pointed to problems that also affect H-P, including a struggling U.S. public-sector market and lackluster consumer demand. But the hard disk-drive shortage did not have as big an effect as many had speculated.
“Dell beat PC revenue expectations, meaning they were able to purchase all the hard disk drives they needed,” ISI Group analyst Brian Marshall wrote MarketWatch in an email. “I think H-P’s guidance assumed they wouldn’t be able to purchase all the drives they would need for the quarter. I think they were able to purchase them.”
However, Bernstein Research analyst Toni Sacconaghi said it was unclear “how much of its hard disk-drive issues were company-specific.”
He wrote in a note that PC makers Acer and Lenovo passed on higher disk-drive costs to customers, noting that both of those companies also gained share from “white box,” or unbranded, PCs.
”Our field checks suggest that H-P responded very differently than Dell to hard disk-drive supply issues by raising prices on transactional sales and discontinuing low-end products, which appears to have translated into notable share loss,” Sacconaghi added.( hp Presario V6500 Battery )
Dell did say that the company didn’t get enough supply of higher-end capacity drives, limiting its ability to make and sell higher-end PCs. That is a problem for a company that’s been trying to push deeper into higher-margin segments by de-emphasizing its lower-margin businesses.
Those efforts have paid off, as Dell’s improved profit margins have won praise on Wall Street, where the stock had jumped roughly 24% since the first of the year before Tuesday’s report.
Dell’s report quickly sparked a debate on what it means for the Round Rock, Texas-based company’s push for greater profitability.
“That’s all folks,” Needham analyst Richard Kugele quipped in a note, as he downgraded the stock to hold from buy. “It’s been an impressive run year to date for Dell, rising over 24% and surpassing our $17 target as the fundamental improvements in its business mix were gradually recognized by investors.”
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