Dell and Hewlett Packard show mixed fortunes of PC market

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After a series of disappointments during 2011, results from Hewlett Packard and Dell over the last 2 days show the pressure being felt by the traditional PC manufacturers as consumers increasingly purchase Apple and Samsung products.

Dell shares dropped 17% yesterday to $12.50 after poor results and a weak outlook for the remainder of 2012 spooked investors. The company blamed weak corporate IT spending and a shift by consumers from traditional laptops to tablets and other devices.

The company reported a fiscal first quarter 2012 profit of $635 million, or 36 cents a share, compared with a profit of $945 million or 49 cents a share in q1 2011. Adjusted earnings were 43 cents a share, compared with expectations of 46 cents. Revenue was $14.4 billion, down from $15 billion and below expectations of $14.9 billion..

After the close last night, Hewlett Packard reported  better than expected quarter one 2012 revenues of $30.7 billion, down from $31.6 billion in q1 2011. Adjusted earnings were $1.6 billion or 98 cents a share. Analysts were expecting  earnings of 90-91 cents a share, on revenue of $29.9 billion.

HP’s second quarter estimates also beat expectations with earnings per share of 98 cents on revenues of $30.7 billion, beating estimates of 91 cents a share on $29.9bn in revenues. But third quarter estimates of 94-97 cents a share were below expectations of $1.02.

Revenues declined 10 per cent year-on-year in HP’s imaging and printing group and fell by 6 per cent for its enterprise servers, storage and networking products division and were flat in its PC and services division.

The Autonomy division interestingly missed targets and lead to the swift departure of founder Mike Lynch. The company was bought by HP for $10.3 billion in 2011.  Analysts have feared that HP had always overpaid for the British company and poor licensing revenues for its software products meant that Lynch has had to pay the price and be replaced by head of software Bill Veghte.

HP also announced it would cut 8% of its work force, or 27,000 people by the end of 2014 saving $3.5 billion a year and increasing earnings per share in 2012 from $4 to up to $4.10. The cost of the cut backs will be $1.7 billion in 2012 and $1.8 billion in 2013/14.

After falling over 3% in the regular session due to Dell’s poor results, HP bounced 9% in after hours trading to close at $23 on the earnings beat and job cuts. CEO Meg Whitman is seen as taking serious action to address HP’s underlying problems in an attempt to stem the falling sales and return the company to growth.

Though consumers and corporate IT departments are still buying “big box” PC’s, tablets and mobile devices are increasingly being used as both mobile and cloud computing continue to gain traction. Music is a great example of the changing world. In days of old, you had to have hundreds of CDs, then you had hundreds of music files on your PC, now you can use products such as Apple Itunes Match or Google Drive to store them on the Cloud meaning you can access them anywhere. The next step will be fully integrated TV devices and that is why Apple’s television product is hugely anticipated in late 2012 or 2013. Will they crack the issue of TV, internet browsing and picture/video viewing in one solution?

Contrarian Investor UK 

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