Dell, H-P Recovering as PC Outlook Brightens

(NewsCore) - When Dell Inc. and Hewlett-Packard Co. report quarterly results this week, they're likely to portray a computer market that's battered but recovering as the two rivals battle for supremacy in higher-margin businesses.

Both companies have been hurt by the PC slump, which was worsened by the disk-drive shortage in the aftermath of floods that devastated Thailand.

Economic uncertainty, especially in Europe, hasn't helped, although Dell and H-P both have had a shot at benefiting from a recovery in PCs along with growth trends in the corporate market which have lifted demand for hardware.

PCs will still have a tough time in the first half of the year, said Bob O'Donnell, an analyst with researcher IDC. But "the general feeling is we will see some modest improvement in the second half," he said.

Wall Street sentiment on Dell has been particularly strong, as its shares have jumped more than 20 percent year-to-date as of Friday.

Round Rock, Texas-based Dell is set to report after the market closes Tuesday. Wall Street has estimated the company earned a fiscal fourth-quarter profit of 52 cents a share, on revenue of $15.97 billion, according to FactSet Research's analyst survey.

In the year-earlier period, the company earned 53 cents a share, on revenue of $15.7 billion.

"We believe that Dell could deliver upside to consensus earnings per share and revenues given the extra week of sales and share gains in segments such as PCs and servers versus H-P," Ben Reitzes, a Barclays Capital analyst, wrote in a research note.

However, Sterne Agee's Shaw Wu downgraded Dell to underperform from neutral, writing, "We believe investor sentiment on Dell shares has gotten too positive and arguably complacent," he said.

At ISI Group, analyst Brian Marshall wrote in a note that H-P is "the only vendor which owns all of the required IP for architecting next-generation data centers."

But he also argued that the "challenge becomes integrating the roughly $35 billion of companies H-P acquired over the past several years."

The company is also going through a transition under CEO Meg Whitman, who replaced Leo Apotheker, whose brief and ill-fated reign ended abruptly last September.

After the market closes Wednesday, H-P is expected to post a fiscal first-quarter profit of 87 cents a share, on revenue of $30.8 billion, according to FactSet Research.