Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Results From HP and Dell May Be Pretty Good After All

Probably the last thing you’d expect from Hewlett-Packard and Dell right now is a set of positive quarterly results, but that’s exactly what Deutsche Bank analyst Chris Whitmore is expecting from the two companies when they report quarterly results next week. (Dell reports Wednesday Tuesday; HP on Thursday Wednesday.)

Is Whitmore just seeing the world through some rose-tinted shades? After all, consider the state of the industry — PC sales are suffering generally from a prolonged case of iPad envy among the consumer set, the ongoing shortage of hard drives brought on by the flooding in Thailand, and a global economy that has Europe flat on its back, the U.S. recovering but wobbly, and every other region tenuous. Meanwhile, HP and Dell aren’t exactly their old selves.

And yet here’s Whitmore explaining his positive expectations from both, in a note to clients today: “Investors appear to be positioned for solid results from both HP and Dell as recent data suggests enterprise IT spending finished 2011 well. We expect IT spending to gain momentum through 2012 due to an improving US macro backdrop and forthcoming product cycles.”

Pretty good, relatively speaking. Whitmore goes on at length on each company. About HP, he says its recently lowered expectations — CEO Meg Whitman has designated 2012 as a rebuilding year — will be easy to beat. Revenue might even come in below expectations of $30.1 billion, but per-share earnings will probably beat the consensus of 87 cents. The reason? Corporate demand for IT hardware, specifically PCs and servers, remains healthy in the face of weaker demand for PCs among consumers — the iPad is sapping demand — and a weakness in sales of printers. Recent cost-cutting, favorable prices on commodity components, and other changes made in recent restructurings will combine to give HP a slight edge on the EPS front, Whitmore says.

That’s not to say there isn’t still some messy business yet to finish at HP. While its official guidance forecasting a per-share profit of $4 in 2012 still stands, there’s still the ongoing strategic question of addressing its weakness in the consumer PC business with a tablet that can take on Apple’s iPad. Also, results from Lexmark and Canon, Whitmore says, show continued weakness in the printer business, which will hit HP right where it hurts.

Then there’s the longer-term questions, like Whitman’s ultimate plan to save HP, and how the $10.6 billion acquisition of Autonomy is going to further that goal. “We believe investors will continue to focus on Meg Whitman’s long-term vision for HP and her efforts to revitalize HP’s growth strategy,” Whitmore wrote. “Specifically, an update on the integration of Autonomy, plans to reposition Services, growth plans for printing and its PC strategy are all important topics that need to be addressed.”

Then there’s Dell: As with HP, Whitmore says to expect soft results on the revenue side, but healthy profit margins and a decent upside to per-share earnings. Healthy demand from big companies should be offset by weaker demand from government clients and consumers. The consensus estimate has Dell reporting $15.9 billion in sales and 50 cents a share in earnings. Dell’s server sales finished strong in 2011, Whitmore says, and its customers tended to shift toward higher-priced, more profitable machines. He expects Dell’s gross margin to be 22.5 percent, up slightly from the 21.5 percent seen in the year-ago quarter.

He expects Dell to have a pretty good year, too: Modest growth in revenue should be accompanied by ever-better gross margins. Dell made some big investments in 2011 that added to operating expenses, and Whitmore expects the company to put those investments to work in 2012. As such, the $2.04 per-share profit that Dell has forecast for the year could prove conservative. He sees Dell reporting a profit of $2.20 for the year.

Correction: I initially got the days that Dell and HP are reporting their results wrong and have since fixed it. Sorry about that.

(Larry David image is on this T-shirt.)

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