Dell and HP quarterly results suggest business spending is back, even as consumer PC spending remains anemic. Dell and HP are rolling out new consumer mobile products.
Hewlett-Packard and Dell both offered quarterly results Aug 19, and their
numbers offered some of the clearest signs that the business arena is in the
midst of an IT tech refresh. At the same time, however, sales of consumer PCs
seem to be weakening, in a possible signifier of the anemic economic
recovery.
Overall, HP posted strong results for the third fiscal quarter of 2010, with
net revenues of $30.7 billion. The company's Services, Enterprise Storage and
Servers, HP Software, Personal Systems Group, and Imaging and Printing Group
all experienced a year-over-year increase in revenue.
"We believe we are in the midst of a broad recovery in enterprise
infrastructure spending, which HP should benefit from," Dinesh Moorjani,
an analyst with Gleacher & Company, wrote in an Aug. 20 research note to
investors. "The company is also investing in margin-accretive areas such
as networking and services, and increasing its sales coverage, and can still
outgrow the IT market despite its size."
Even as HP enjoyed increased enterprise sales, however, executives on the
Aug. 20 earnings call pointed out some lack of demand in the consumer notebook
market.
Likewise,
Dell
experienced strong demand from commercial customers, which helped drive
quarterly revenues of $15.5 billion. However, the company's consumer business
remained flat at $2.9 billion.
"We're confident we can improve our customer business operating margins
to the 2 percent level in the near term," Dell CFO Brian Gladden said
during the company's Aug. 19 earnings call. "We've been repositioning the
business, which involves targeting our efforts to the right geographies,
products and customer subsegments. We have a solid product portfolio lining up
for the holidays, and we're making progress in simplifying our product
portfolio."
In the consumer segment, both Dell and HP find themselves battling companies
such as Acer, which have gained market share through lower-priced devices. Even
so, commercial sales represent the substantial revenue driver for both.
"Commentary regarding commercial demand was positive and 81 percent of
Dell's revenue comes from commercial customers," wrote Brian Alexander, an
analyst for Raymond James, in a co-authored Aug. 20 research note on Dell. "The
commercial spending environment remains robust, particularly in the Large
Enterprise space (30 percent of revenue)."
Ultimately, both companies are benefiting from a pickup in business
spending, even as consumer PC sales remain anemic.
"The commercial PC refresh is in full effect with commercial PC revenue
and ASP growth accelerating relative to the prior quarter," Alexander
wrote in another Aug. 20 note, this one about HP. "Management confirmed
that consumer PC demand is waning and channel inventory is approximately two
days above target."
During the global recession, analysts generally predicted that companies
would start spending on IT infrastructure once the economy showed
improvement-and that, after quarters or even years of waiting, the scope of
that tech refresh would be enormous.
Even as the global economy began an ostensible recovery, however, business
spending seemed slow to follow. Microsoft executives noted earlier in 2010 that
sales of Windows 7, which was meant to coax companies into upgrading both their
hardware and software portfolios, was selling well among consumers, but that
businesses had yet to engage in the same level of purchasing.
But it seems that at least a portion of businesses are starting to come
around.
"TBR believes businesses worldwide are cautiously refreshing their IT
hardware, driven by the necessity of replacing hardware kept in service through
the recession," Ezra Gottheil, an analyst with Technology Business
Research, wrote in an Aug. 20 research note. "The new equipment is
advanced over the devices being replaced, and in many cases increased
efficiency drives a rapid return on investment."
Those manufacturers concentrating on the consumer market, though, may have
cause for worry; and companies such as HP, with substantial consumer segments,
may need a new strategy to boost their products' uptake.
"TBR believes the growth in the consumer PC market slowed as a result
of loss of confidence, but that HP's slowdown was greater than that in the
overall consumer market," Gottheil added. "To maintain margins in
this commodity market, HP is choosing not to compete in a PC price war with
Acer."
Both Dell and HP seem to think that tablets could be a way to attract
consumers. Dell recently released the Streak, a 5-inch tablet meant to compete
with similar touch-screen products such as the iPod Touch and iPad. HP is
widely expected to
install
its newly acquired Palm WebOS as the operating system for an upcoming series of
mobile devices, including tablet PCs and smartphones.
Editor's Note: This article has been updated with an
additional quote from an analyst.
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