*NEWS*WALL STREET NOW IN LOVE WITH HP

  • 161213_banner_futorag_902x177px
  • 4toner4
  • toner-news-big-banner-nov-8
  • cartridgewebsite-com-big-banner-02-09-07-2016
  • 536716a_green_sweep_web_banner_902x17712
  • mse-big-banner-new-03-17-2016-416716a-tonernews-web-banner-mse-212
  • futor_902x177v7-tonernew
  • 05 02 2016 429716a-cig-clearchoice-banner-902x177
  • 2toner1-2
  • Print
  • big-banner-ad_2-sean
  • facebook-tonernews-12-08-2016
Share

*NEWS*WALL STREET NOW IN LOVE WITH HP

 user 2006-05-16 at 11:40:00 am Views: 60
  • #15462

    May 06
    In a reversal of fortune, Wall Street has fallen out of love with
    onetime darling Dell Inc. and is instead talking up rival and onetime
    laggard Hewlett-Packard Co.

    A revitalized Hewlett-Packard company is eating into Dell’s profits.
    For
    years, Dell, the world’s largest computer maker by number of computers
    sold, was the investor favorite. Dell pioneered selling personal
    computers directly to corporate and individual customers through the
    Internet and by telephone, a method that reduced inventory costs and
    allowed Dell to price its PCs more cheaply than rivals such as H-P -
    and still make a hefty profit. Using this direct model, Dell’s sales
    rose to $55.9 billion from $5.3 billion 10 years ago
    Now the
    business model is looking a bit winded. For the first time in about 15
    years, Dell is expanding more slowly than the U.S. PC market. A shift
    in PC growth from corporate purchasers to consumers, often in retail
    stores, and into international markets, two of the weaker areas in
    Dell’s business, is contributing to the sluggish performance. A
    revitalized H-P and other rivals such as Lenovo Group Ltd. are eating
    into Dell’s price advantage. On Monday, Dell said it would miss its
    first-quarter sales and earnings forecast.Now Wall Street is demanding
    an action plan. Even as Dell stock has dropped nearly 14 percent this
    year while H-P’s is up 15 percent, the Round Rock, Texas, computer
    maker doesn’t appear to want to acknowledge its problems. In an
    interview last month, Dell Chief Executive Kevin Rollins denied the
    company’s direct business model was troubled.”We didn’t grow as fast as
    we could have,” Mr. Rollins said. “While the growth may not have been
    as high as it was historically, the growth is still essentially higher
    than all our competitors.”
    That talk isn’t cutting it with Wall
    Street, which is insisting Dell lay out a recovery plan, perhaps as
    soon as its May 18 earnings call. It has been “difficult and
    frustrating for investors” that Dell hasn’t outlined a course of
    action, said Toni Sacconaghi, an analyst for Sanford C. Bernstein &
    Co., in a report. Mr. Sacconaghi rates Dell “outperform.” Mr.
    Sacconaghi said that, in the long term, Dell has advantages because of
    its direct model, which will ultimately enable the company to gain
    share.Chirag Vasavada, technology analyst for money-management company
    T. Rowe Price Associates Inc., added that Dell has gone from a growth
    company to a turnaround story, and said the company needs to set
    realistic expectations for Wall Street. As of Dec. 31, 2005, T. Rowe
    owned 40.4 million shares of Dell, up from about 38 million shares at
    the end of the previous quarter.”We have gained share every year since
    1995 in almost every customer segment and product category in each of
    our top 15 countries,” said Dell spokesman Bob Pearson. “It is clear
    that our model is being embraced throughout the world. We are confident
    that we are best positioned to grow and gain an even larger share of
    our $1.4 trillion industry in the years ahead.”On Monday, blaming
    overly aggressive discounting on PCs, Dell said it would earn 33 cents
    a share for its fiscal first quarter ended May 5, down from its
    original forecast of 36 to 38 cents a share. It revised its revenue
    forecast to $14.2 billion, down from a range of $14.2 billion to $14.6
    billion.
    Dell’s woes on Wall Street come as rival H-P’s star has
    ascended.For years, H-P had a PC unit that was in the red. Ever since
    2004, when the Palo Alto, Calif., company decided to focus on the
    profitability of its PC business rather than market share, the unit has
    slowly recovered. H-P has benefited from selling PCs through retailers
    - something Dell doesn’t do – as more consumers test out laptop
    computers in person before buying them.H-P’s image has improved since
    Mark Hurd came on board as the company’s chief executive early last
    year. Mr. Hurd, who is regarded as an operations maven, has
    restructured H-P to give more control back to the business units, laid
    off employees and is overhauling the company’s sales process. H-P
    declined to comment.In February, H-P reported that its PC business
    generated operating margins of 3.9 percent; in many previous quarters,
    the margins were less than 1 percent. By comparison, Dell’s operating
    margins were 8.2 percent in its most-recent reported quarter.H-P is
    taking market share away from Dell, potentially positioning it to
    overtake Dell as the world’s biggest PC maker at some point in the
    future. In the first quarter of this year, Dell’s world-wide PC market
    share slipped to 18.1 percent from 18.6 percent a year earlier, while
    H-P’s share increased to 16.4 percent from 15.1 percent, according to
    research company IDC.”Dell shares have further risk,” wrote Bear
    Stearns analyst Andrew Neff in a report. “We like H-P given the
    turnaround.” In 4 p.m. composite trading Thursday, Dell shares were
    down 38 cents, or 1.5 percent, to $24.51 on the Nasdaq Stock Market,
    while H-P shares were down 55 cents, or 1.7 percent, at $32.53 on the
    New York Stock Exchange.Ken Smith, director of technology research for
    Munder Capital Management, said Dell could improve its image on Wall
    Street by agreeing to use chips, which essentially act as the brains of
    a PC, from Advanced Micro Devices Inc. Dell uses Intel Corp.
    microchips. In the past three years, analysts say, AMD chips have
    become faster, use less power and generate less heat than Intel’s
    products.
    Striking a deal with AMD “would show (Dell is) going to be
    aggressive in bringing out competitive products and use whatever
    supplier they need to do that,” Mr. Smith said. As of the end of the
    first quarter, Munder Capital Management owned nearly 1.4 million
    shares of Dell, down from about 2.9 million shares at the end of last
    year, according to 10-K Wizard Technology LLC, a provider of research
    on Securities and Exchange Commission filings.
    Sebastian Thomas,
    head of U.S. technology research for RCM Capital Management LLC, is
    doubtful that any one course of action will solve Dell’s problems right
    away. Mr. Thomas, who helps RCM manage $127 billion world-wide, says
    Dell should get more aggressive to boost sales in emerging markets and
    could invest further in industrial design to recapture high-end PC
    buyers. RCM owned more than 1.7 million shares of Dell at the end of
    the last year’s fourth quarter, according to the latest SEC filings,
    down from 2.3 million shares in the third quarter.Even with such
    actions, Mr. Thomas says that, until Microsoft Corp.’s new operating
    system software, dubbed Vista, hits the market starting later this
    year, pricing is the only lever Dell can pull to fend off these
    challenges. That is because Dell is boxed in by shifts in the PC
    market, he says.The majority of Dell’s growth comes from the mature
    U.S. PC market, for one. Meanwhile, U.S. consumers appear more willing
    to buy at retail stores, where Dell has hardly any presence.