HP, Dell show caution to the winds
June 2, 2009
Hewlett-Packard is a bellwether for the world's economy, but the vendor won't toll the beginning of a recovery anytime soon. HP's stock is one of the 30 Dow Jones Industrials blue chips, so its fortunes have a direct impact on the world's perception of economic rebound. CEO Mark Hurd expressed caution last week while he briefed financial analysts in HP's semi-annual presentations.
According to the HP chairman, it's been years since the IT marketplace enjoyed a robust round of purchasing. It was sometime in 2005 when the sales flowed for HP's products, including the servers which HP sells to replace migration-bound 3000s.
"The buildup now of four-year-old desktops, four-year-old notebooks, four-year-old servers, this is creating quite a bubble," Hurd said at Sanford C. Bernstein & Co.'s Strategic Decisions conference. "There's going to be a time when there's going to be some real opportunity here."
This kind of bubble has been a steady element of HP 3000 ownership. Five years was the more likely span between major 3000 upgrades, and many customers could push their purchases closer to a decade, so long as business didn't grow too fast. This pace didn't match the churn in PC-based and Unix server sales, so HP retired its 3000 business in favor of the faster-growing IT products.
For now the company's financial and services sectors are providing the majority of HP profits, while ink and printers continue to chip in their 40 percent. Hurd said he's confident HP can hit its profit forecast for fiscal 2009, but he won''t speculate on the timing of a turnaround in tech spending.
HP's chief rival in the Windows-based server arena, Dell, relayed the same kind of caution in the wake of a poor quarterly report last week. The company's CEO Michael Dell said he's "seeing a big deferral of purchases among corporations," while he revealed results for the period that ended May 1. Dell's Q1 earnings dived 63 percent as sales dropped 23 percent.
HP's Q2 report showed the same kind of declining trend as Dell's Q1. Dell posted the second straight quarter of big profit declines. The company doesn't see prospects for improvement. "We don't believe there's enough momentum to call a bottom yet," added Chief Financial Officer Brian Gladden.