HP and Dell announce their results Thursday. What to expect.
Investors will have new information on the state of the personal computer industry on Thursday when Dell and
publish the results for the July quarter after market close.
Both stocks have performed well this year – Dell (ticker: DELL) is up 37%, while HP (HPQ) is up 18% – due to increased demand for PCs triggered by pandemic . But the gains have moderated lately in significant cross-currents that could show up in both the July quarterly results and the forecast.
On the one hand, it was expected that, as schools and offices begin to reopen, growth in consumer PC demand will moderate and business demand will accelerate. There is already clear evidence of slowing demand for Chromebooks, a bigger factor for HP than Dell. But this dynamic has been blurred by the emergence of the Delta strain, with some companies now delaying the reopening of their offices. Meanwhile, component shortages and higher shipping costs have become a factor for every tech hardware company and remain a factor for both companies.
Indeed, the market research firm International Data Corp. this week cut its forecast for 2021 for global PC shipments growth of 14.2% vs. 18%, reflecting “supply chain and logistics challenges”. IDC predicts compound annual growth through 2025 of 3.2% for PCs, with tablet units expected to decline at an annualized rate of 1.2%.
While the state of the PC market is important to both companies, there are also some company-specific dynamics to watch out for.
For HP, a return to the office should be a boost to its corporate printing business; Investors will listen to comments on whether the Delta variant will affect an expected recovery in demand for printers and supplies. Meanwhile, HP has aggressively bought back its own shares – repurchasing 17% of the free float over the past four quarters – and has pledged to continue repurchasing at least $ 1 billion of its shares each quarter. The company is likely to provide an update on its capital allocation strategy.
Dell’s business includes enterprise servers and storage products that are expected to benefit directly from a recovery in business IT spending, and the business PC business is expected to benefit from the same. Meanwhile, investors await the completion of the company’s split of its majority stake in
(VMW), which is expected to close before the end of the year. This transaction includes a large dividend to Dell, which it intends to use to significantly reduce debt. VMware also releases its financial results Thursday.
HP projected third-quarter non-GAAP earnings of 81 cents to 85 cents per share; the street consensus is 84 cents. The Street has revenue of $ 15.9 billion, which would be stable with the April quarter and up about 11% from a year ago.
Dell does not provide detailed financial advice, forecasting that last quarter demand will remain strong, but with sequential growth in the July quarter slightly below the historic average seasonal increase of 6%, largely due to restraints supply. Street consensus estimates project revenue of $ 25.5 billion, which would be up 4% sequentially and 12.3% year-over-year, with profits of $ 2.03 per share.
Citi analyst Jim Suva retains buy ratings on Dell and HP. He notes that there has been some pressure on both stocks due to fears of decelerating order dynamics, with particular slowing in demand for consumer PCs in general and Chromebooks in particular. But he thinks fears of a sharp drop are overblown.
Suva writes that Dell remains its top choice for enterprise hardware, seeing the potential for higher inventory “revaluation” aided by VMware’s turnover and related debt repayment expected.
Evercore ISI analyst Amit Daryanani also has outperformance ratings on both companies, but has a preference for Dell stocks. He believes the company will post a “noticeable hike” over consensus estimates, driven by market share gains in PCs and “best execution” on enterprise storage, and expects that. Considerable attention be given to the post-earnings analyst call on the company’s outlook after the completion of the VMware Shoot.
For HP, Daryanani is a little less optimistic, noting that the company has recently lost market share, possibly due in part to slowing demand for Chromebooks.
HP and Dell shares were trading slightly higher on Tuesday.
Write to Eric J. Savitz at [email protected]