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Hardware market awaits HP, Dell quarterly earnings

Dell looks for a rebound from stronger PC shipments while HP hopes to extend streak as layoff cost-savings take hold.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
3 min read
Back-to-back earnings releases from PC industry titans Dell and Hewlett-Packard this week will help provide a clearer picture of the health of the PC and server markets.

The two bitter rivals are on an odd fiscal-year schedule that has them reporting earnings about a month after most other technology companies. On Wednesday, HP plans to report first fiscal quarter 2006 earnings, which are expected to keep Chief Executive Officer Mark Hurd's Wall Street honeymoon going for at least another quarter. Dell, on the other hand, needs solid fourth-quarter numbers Thursday to end a pattern of disappointing earnings.

Analysts surveyed by Thomson First Call expect HP to post revenue of $22.5 billion and earnings per share of 44 cents, up 5 percent and 19 percent respectively from the same period last year. Dell's targets are revenue of $14.8 billion and earnings per share of 41 cents, up 10 percent and 11 percent respectively from last year.

Intel posted disappointing fourth-quarter results based in part on the poor performance of the desktop PC market. PC makers Gateway and Lenovo also endured worse-than-expected fourth quarters, and investors and analysts now look to the two market share leaders for guidance.

The main reason for HP's improved earnings outlook over the last year has been an aggressive cost-cutting plan enacted by Hurd that resulted in 14,500 layoffs. The cost savings associated with those layoffs are starting to be reflected in the current quarter, wrote Cindy Shaw, an analyst with Moors & Cabot, in a research note distributed Monday. Financial analysts applauded the move last July, but said HP also needed to improve its ability to launch products and close deals on schedule to meet higher expectations, she wrote.

The company's server group has benefited from the strong interest in Opteron servers, and HP is also believed to enjoy cost advantages from its use of AMD chips in some of its PCs, wrote Richard Farmer, an analyst with Merrill Lynch, in a Tuesday research note.

Dell investors are looking for positive signs following the last two quarters. A weak U.S. consumer market hurt the company in its second and third fiscal quarters last calendar year, but recent market share numbers published by IDC and Gartner showed that Dell's PC shipments grew faster than the overall market in the last quarter of the calendar year.

"We believe Dell performed well in (its fourth fiscal quarter) versus very conservative guidance but continue to think it is no longer benefiting from what we consider Dell's historical advantages: low prices and superior service," Shaw wrote in a report published Tuesday.

HP usually has an edge over Dell in the consumer-heavy fourth-quarter holiday shopping season, since the vast majority of Dell's customers are corporations. But HP's PC sales grew slower than the market in the fourth quarter, according to IDC and Gartner.

HP attempted to lure additional channel business in January with incentives, something it hadn't done in the past two quarters, Toni Sacconaghi, an analyst with Sanford C. Bernstein, wrote in a research note.