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 user 2005-05-22 at 1:55:00 pm Views: 56
  • #9688

    HP could benefit from drop in Dell printer

    sAN FRANCISCO  – A sharp drop in consumer printer sales at Dell Inc. in an
    otherwise glowing quarterly report may offer an opening to rival Hewlett-Packard
    Co. when it posts its own earnings results next week.

    HP, the top maker of personal computer printers, is set to post slightly
    higher quarterly results on Tuesday, despite sales weakness in Europe,
    price-cutting in its core printer business, and expected job lay-offs, Wall
    Street analysts say.

    Despite the chink in its rapid printer growth, Dell’s otherwise solid results
    for the quarter ended in April and optimistic near-term outlook fueled a 6
    percent jump in Dell shares on Friday, lifting technology stocks broadly.

    Dell’s confidence, echoing recent optimism from top chipmaker Intel Corp. and
    network gear leader Cisco Systems Inc., reassured investors that no universal
    slowdown is taking place — at least among companies gaining market share or
    with hit new products.

    In the enthusiasm, even HP shares gained by 2.5 percent.

    Dell, the world’s largest personal computer maker, has been on the attack
    against No. 2 ranked PC maker HP by going after HP’s highly profitable printer
    business, and by extension, HP’s ability to invest in its barely profitable PC

    “Dell’s threat is real, but investors who have extrapolated to an inevitable
    demise of the HP franchise should probably pause and take stock,” SG Cowen
    analyst Richard Chu said in a note to clients.

    Dell, whose gains often come at the expense of HP, said on Thursday that its
    inkjet printer sales have fallen over the past three months, despite growing 60
    percent from a year ago. Dell has enjoyed surging growth since entering the
    printer market a year and a half ago.

    But the overriding issue for HP remains whether newly hired CEO Mark Hurd
    will seek to lower investor expectations for the company in the near-term.
    Investors have adopted a wait-and-see attitude to HP stock awaiting word on
    Hurd’s strategy.

    “The keys remain whether new CEO Hurd — in his (debut) — will reset
    financial expectations and/or give investors further confidence in his ability
    to drive operational improvements at HP,” Bear Stearns analyst Andy Neff advised
    investors in a research note.

    HP shares are off just 1.5 percent so far this year, far less than most other
    technology names. Until its sharp gain on Friday, Dell had fallen 13 percent on
    the year. IBM, another major HP rival, is down 26 percent for the year.

    A variety of Wall Street analysts continue to clamor for HP to split-up the
    company in order to unlock shareholder value buried within the combined PC,
    printer and enterprise computer company.

    Neff summed up this feeling earlier this month: “As Mark Hurd takes the reins
    of HP, we have some suggestions for an action plan: Be bold. Get (out of) PCs.
    Rationalize the enterprise business… In short, don’t spin-off printers but
    de-emphasize the rest.