HP and Dell report solid figures, but uncertainty looms

In the past few weeks, Hewlett-Packard’s CEO has been ousted amid accusations of sexual harassment while Dell’s founder, CEO and chairman has been threated with shareholder revolt.

The financial results published by both companies this week were less disastrous: in each case, revenue and profit grew in double figures. But for both HP and Dell, there are signs that strong leadership may be needed in the immediate future.

During the three months ending July 31 2010, HP saw revenues grow 11.4% year-on-year to $31.0 billion and net earnings increase by 15% to $2.6 billion.

The IT giant’s revenue growth was helped along considerably by its enterprise systems unit. Revenue for industry standard servers shot up 31% to $3.0 billion, while storage sales grew 10% to $904 million. The division also boosted profitability, its operating profit growing 44% year-on-year to $549 million.

The poorest performing division in revenue terms was the services unit, where sales grew by just 1% year-on-year. Still, the unit’s operating profit rose 7% to $1.4 billion.

Of course, these year-on-year revenue and profit comparisons hark back to the depth of the recession. Compared to the immediately previous quarter, HP’s figures were less impressive: total revenues fell by 3% quarter-to-quarter and net earnings dropped 24%.

There may well be seasonal factors afoot – among businesses, for example, fewer buying decisions typically take place in July than in other months of the year. But the quarter-to-quarter comparisons nevertheless reveal that the company’s continued growth is not a foregone conclusion.

In the same three months, computer maker Dell’s revenue grew by 22% year-on-year to $15.5 billion, and net income grew by 16% to $545 million.

The acquisition of IT services provider Perot Systems in November 2009 was a significant contributory factor to Dell’s revenue growth. The company’s services division jumped 55% year-on-year to $3.1 billion as a result of that.

But the company also saw high growth within its servers and networking division, up 37% to $3.7 billion. Its desktop PC business and laptop units grew by 19% and 15% respectively, to $9.2 billion and $7.4 billion.

In quarter-to-quarter comparisons, Dell fared rather better than HP. Total revenues rose 4% sequentially, and net income by 60%.

However, its continued growth is also under question. Market analysts question whether the uptick in PC and laptop sales seen during the first half of this year will continue as the economic recovery decelerates. "The hyper-growth already exhibited through [the first half] of 2010 cannot be sustained," one analyst said this week.

Although HP and Dell report sales of certain products very differently – Dell bundles sales of its networking products in with its server division, for example, while HP reports them under the umbrella heading of Corporate Investments –  some like-for-like comparisons are possible. As can be seen in the graphs below, HP leads in most categories of hardware sales, but Dell can be seen closing the gap in many.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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