Caroline Humer
NEW YORK: Weak corporate spending is expected to take its toll when
Hewlett-Packard Co. and Dell Computer Corp. report quarterly results later this
week, although HP's bottom line should benefit from cost-cutting ahead of buying
Compaq Computer Corp.
Palo Alto, California-based HP, which makes computers and printers, will
report on Tuesday its final quarter without Houston-based Compaq. HP, which
waged an extended battle with dissident shareholder Walter Hewlett over its
Compaq deal, cut costs during the quarter and is due to post higher earnings
even as revenues fell.
Meanwhile, Round Rock, Texas-based Dell, which lost its standing as the No. 1
personal computer maker after HP vaulted past it with the acquisition of Compaq,
used its direct business model to keep prices low and increase market share
during the quarter.
Dell and HP are also expected to give some insight into corporate technology
spending, although HP is seen keeping guidance on HP's and Compaq's future
combined earnings to a minimum. Other technology companies have painted a mixed
picture of spending on new technology.
The world's largest computer company, International Business Machines Corp.,
for instance, has painted a bleak picture of tech spending and is expected to
make one of its largest work force reductions in a decade this quarter. IBM
hosts a meeting for Wall Street analysts on Wednesday.
Waiting for word on corporate demand
Dell, meanwhile, is due to report on Thursday earnings for its first fiscal
quarter of 16 cents a share on revenue of $7.8 billion, down slightly from a
year earlier, according to Thomson Financial/First Call. Dell told analysts to
expect a decline of 3 per cent to 5 per cent in revenues in February, or in a
range of $7.66 billion and $7.82 billion.
"We expect them to post strong unit sales and continue to gain share,
both in the consumer and corporate space," said Gerard Klauer Mattison
& Co. analyst David Bailey. "Obviously, the pricing environment remains
fairly aggressive in an attempt to generate demand, so we are looking for
relatively flat revenue sequentially and earnings to be down just a touch,"
Bailey said.
With consumer spending expected to follow historical trends and decline in
the next two quarters, Dell will rely more on corporate customers, who already
make up the bulk of its revenues, Bailey said. "We would expect them to say
the IT demand outlook remains relatively soft," Bailey said.
In one sign of Dell's move to diversify its revenues away from PCs and
computers, the company on Monday said it has begun selling a digital projector,
a move it signalled last month. Lehman Brothers analyst Dan Niles said he
expected little change in Dell's outlook for IT spending to see a mild recovery
later this year and a full recovery by the middle of 2003.
HP's last quarterly stand
HP, meanwhile, is reporting its last quarter as a stand-alone company. Its
May 3 purchase of Compaq came after the close of its second fiscal quarter on
April 30, requiring it to report quarterly results for the HP company alone.
Compaq reported its first-quarter results last month.
Analysts say that despite the protracted proxy battle between HP management
and dissident shareholder Walter Hewlett during the quarter, HP's revenues were
in line with expectations and will have declined to $11.09 billion from $11.6
billion a year earlier, according to Thomson Financial/First Call.
"Our channel checks reveal that the company's quarter -- despite the
distractions from the lawsuit, integration planning and a continuing weak
spending environment -- appears to be on track to meet revenue guidance of
"modestly down sequentially", Sanford C. Bernstein analyst Toni
Sacconaghi said.
Extensive cost cutting, however, helped HP's bottom line during the quarter,
Sacconaghi said. He sees earnings of 29 cents per share on revenue of $11.2
billion. Analysts expect earnings of 25 cents per share, up from 17 cents per
share a year earlier, according to Thomson Financial/First Call.