Hewlett-Packard continued to over-achieve Wednesday, beating Wall Street earnings expectations by $0.05 a share. Excluding charges and one-time items, the Palo Alto, California, computer and printer maker reported earnings of $0.52 a share, compared to $0.36 in the year-ago period. Those results easily beat Thomson Financial’s consensus forecast of $0.47 a share. HP's revenue was $21.9 billion, compared to $20.8 billion for the same quarter a year ago.
Shares of the company jumped 4.41 percent to $35.95 in after-hours trading"We gained share without sacrificing margins and continue to execute well against our long-term plan," CEO Mark Hurd said in a statement. The strong results for HP are in sharp contrast to expectations for PC rival
Dell, which is expected to report disappointing financial results Thursday for the fifth straight quarter.
Meanwhile, HP—once struggling under the flashy countenance of former CEO Carly Fiorina—continues to impress observers with CEO Mark Hurd’s straightforward cost cuts, a vigorous focus on consumer items like mobile PCs, and an increasing aggressiveness with acquisitions.HP's personal systems revenue, which includes commercial and consumer notebooks and desktops, grew 8 percent to $6.9 billion—second in growth only to its software revenue growth of 30 percent—indicating the company may be grabbing shares from the ailing Dell. Notebook sales increased 14 percent and desktops, 5 percent.By contrast, 25 analysts surveyed by Thomson expect Dell to post earnings per share of $0.22 on $14 billion when it reports its results on Thursday, compared to $0.38 per share on $13.43 billion in the year-ago quarter.
The companies’ exchange in status could be attributed to one word: change. HP has embraced it—starting with the chief executive—while Dell has stuck to methods that worked in the past.
HP’s Remarkable Comeback
“HP has seen a remarkable resurgence in its shares—up 30 percent over the past 12 months—as almost all of its business segments have reacted favorably to more focus and restructuring efforts,” Cowen and Company analyst Louis R. Miscioscia said in a report Tuesday.
Attributing HP’s “remarkable turn” to the chief executive—his report is even titled “Riding Hurd!”—Mr. Miscioscia praised HP’s new zero-based budgets. IDC analyst Crawford Del Prete agreed. “HP… is benefiting from very, very tight management on expenses,” he said.
Another way HP is raising the bar? “Invest[ing] in areas that will enable end-to-end technology solutions,” said Mr. Miscioscia.
Minimal Overlap
The most compelling example of this is HP’s acquisition last month of management software maker Mercury Interactive for $4.5 billion (see HP Grabs Mercury for $4.5B). “The portfolio match is very good and they’re on minimal overlap,” IDC analyst Stephen Elliot said at the time.
HP Grabs Mercury for $4.5BWhile HP hasn’t suffered the weakness of other tech stocks in the past year, Dell has epitomized them. It has failed to meet earnings and/or sales expectations since the second fiscal quarter of last year.
The company has responded by lowering prices even further in hopes of grabbing market share, even as observers note that this only erodes Dell’s profit margins.
And the company continues to hang on to its direct sales model, even while increasing multimedia functions—with which Dell and HP are competing for customers. But multimedia begs for a “try before you buy” experience so customers can hear and see the features.
“We continue to believe it will take a number of quarters for Dell’s EPS to recover from the company’s current service, quality, and pricing points,” Moors & Cabot analyst Cindy Shaw said in a report Tuesday.
Ms. Shaw also noted that Dell’s “product quality has deteriorated”—especially with the 4.1 million notebook batteries the company recalled Monday after a well-publicized laptop fire in Japan (see Dude, You’re Getting a Recall and Laptop Fire Brings Flashpoint).
Laptop Fire Brings FlashpointOverall, though, it could be the way tech spending goes.
“From my standpoint… it’s where we are in the cycle, and right now it’s favoring HP,” Mr. Del Prete said.
Contact the writer:ECubarrubia@RedHerring.com