Management And Strategic Changes At HP And Dell

HP (NYSE:HPQ) and Dell (NASDAQ:DELL) recently reported their quarterly results. While HP reported strong results for its first quarter under new CEO Leo Apotheker, Dell reported mixed results. Both companies reported strong demand from enterprises, while consumer spending was softer. Let’s take a closer look.

HP’s Financials
HP this week reported strong fourth quarter results that beat estimates. Q4 revenue was $33.3 billion, up 8%. Net income was $2.5 billion or $1.1 per share compared to $2.4 billion or $0.99 per share last year. For the full fiscal year 2010, revenue was $126 billion, up 10%, and net income was up 14% to $8.8 billion or $3.69 per share.

During the quarter, Imaging and Printing Group (IPG) revenue increased 8% to $7 billion. Personal Systems Group (PSG) revenue increased 4% to $10.3 billion with Notebook revenue down 3% and Desktop revenue up 13%. Services revenue increased 0.4% to $9 billion. HP Software revenue increased 1% to $974 million and Enterprise Storage and Servers (ESS) revenue was up 25% to $5.3 billion. HP Financial Services (HPFS) revenue increased 11% to $809 million.

Including the impact of the 3Com acquisition completed in April, HP Networking revenue increased 227% overall in the fourth quarter and ProCurve revenue grew 50% over the prior-year period. HP closed the Palm acquisition in July, and this quarter it released the webOS 2.0 and introduced the Palm Pre 2 smartphone.

HP reported growth in all regions, with the Americas growing 10%, EMEA 6%, and Asia Pacific 8%. HP ended the quarter with $11 billion in gross cash versus $14.8 billion last quarter. During the quarter, it repurchased shares for $4 billion and paying dividends of $181 million.

For the first quarter of 2011, HP expects revenue of $32.8 billion to $33 billion and EPS of $1.06 to $1.08. HP expects full-year fiscal 2011 revenue in the range of $132 billion to $133.5 billion and EPS in the range of $4.42 to $4.52. HP is trading around $43 with market cap of about $98 billion. It hit a 52-week high of $54.75 on April 16 and a 52-week low of $38.03 on August 25.

HP Under Apotheker
During the earnings call, CEO Leo Apotheker made two important announcements: first, that HP will be increasing its R&D spending, and second, that it will be raising salaries to pre-recession levels. Apotheker, the former CEO of SAP, was appointed the CEO of HP in September and joined the company in November. Following Apotheker’s appointment, Larry Dignan of ZDNet asked if HP will acquire SAP and bolster its software portfolio. These announcements indicate that HP might follow a more organic path, and acquiring SAP is therefore highly unlikely. But as I suggested earlier, HP’s acquisition of Palm might lead HP to strike up a strong partnership with SAP in the domain of mobile enterprise applications.

Dell’s Financials
Rival Dell, on the other hand, last week reported third quarter revenue of $15.4 billion, up 19%. Net income was $822 million or $0.42 per share compared to $337 million or $0.17 per share last year. Dell ended the quarter with $14 billion in cash and investments.

Revenue grew across all regions: Asia Pacific/Japan grew 39%, the Americas 18%, and EMEA 15%. Dell’s networking revenue increased 36%. Storage revenue was up 7% while revenue from services, driven by the $3.9 billion acquisition of Perot Systems, increased 55% to $1.9 billion. Revenue from desktops grew 21% and mobility revenue was up 16%. Dell regained its No.2 spot nine months after it lost it to Acer, while HP continues to reign in the PC market.

Dell expects fourth quarter revenue to increase slightly. The stock is trading around $14 with market cap of $27 billion. It hit a 52-week high of $17.52 on April 23 and a 52-week low of $11.34 on August 24.

Recent Acquisitions
Dell recently announced its plans to buy Boomi, a SaaS integration leader. Dell is increasingly looking to diversify its business through acquisitions. Last quarter, it announced plans to acquire data storage and management company 3PAR for $1.13 billion. However, HP outbid it and after a bidding war, HP finally acquired 3PAR for $2.4 billion.

Mobility in Trouble
Dell’s Mobility division is being shuttered and its chief, Ron Garriques, is leaving the company in January. The products from its communications solutions group, including the 5-inch Streak tablet, will be folded into other units. Dell plans to launch a 7-inch tablet early next year and a 10-inch tablet toward the middle of next year. But how successful will it be when even HP will join the tablet race? HP has webOS and Dell also needs a differentiating factor. One way to get this could be acquiring RIM and its BlackBerry OS.