PC Makers Are Seeing a Slowdown
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The world's two largest personal computer makers, Hewlett-Packard and Dell, said Tuesday that a slowdown in sales to consumers in the first months of the year damped overall revenues.
"The PC market continues to be bifurcated," Léo Apotheker, the H.P. chief executive, said in a conference call with analysts. He added that "even though our consumer PC expectations had been cautious, the steepness of our Q2 decline is greater than what we had anticipated."
H.P. said that sales of personal computers in the fiscal quarter ending April 30 fell 5 percent, to $9.4 billion. A 23 percent decline in consumer computer sales far outweighed a 13 percent increase in sales to businesses.
Companies that make personal computers, like H.P. and Dell, are vulnerable to changes in consumer spending because of the fragile economy. But despite the tight wallets in a slowly recovering economy, shoppers have been eager to buy tablet computers, a market that H.P. will finally enter this summer with its planned release of the TouchPad, a rival to Apple's dominant iPad.
Analysts attribute some of the weakness in consumer PC sales to the rise of tablets. Overall PC sales declined 1 percent to 3 percent during the first three months of the year, according to slightly different estimates by IDC and Gartner, two market research firms. But they also blamed the economy and a lack of innovation in PCs.
H.P., based in Palo Alto, Calif., reported net income in the quarter rose 5 percent to $2.3 billion, or $1.05 a share, from $2.2 billion, or 91 cents, in the year-ago quarter.
It said that overall revenue in the quarter climbed 3 percent to $31.6 billion.
The adjusted income of $1.24 a share was slightly above the expectations of Wall Street analysts. They had expected $1.21 a share and revenue of $31.54 billion, according to a survey of analysts by Thomson Reuters.
Revenue during the current quarter is expected to be $31.1 billion to $31.3 billion, slightly below analyst forecasts of $31.8 billion. Adjusted income is expected to be around $1.08 a share, which was also below the $1.24 that had been predicted.
Full-year revenue is pegged at $129 billion to $130 billion with adjusted income of at least $5 a share, also below analysts' predictions.
For Dell, sales of servers, computers and storage devices to businesses continued to help offset weaknesses that have plagued its consumer business the last few years.
Brian Gladden, Dell's chief financial officer, said that consumer sales were even weaker than the company had expected during the quarter. But he added that the consumer market accounts for only 20 percent of Dell's total revenue, "a dynamic that is really good for us."
The company reported that in its first quarter, net income nearly tripled to $945 million, or 49 cents a share, from $341 million, or 17 cents a share. Revenue rose 1 percent to $15 billion.
Analysts had forecast earnings of 43 cents a share, on average, on $15.4 billion in revenue for the first quarter.
Sales to large corporations increased 5 percent to $4.5 billion, while Dell's sales to consumers declined 7 percent.
The company expects stronger growth -- midsingle-digit revenue growth in its second fiscal quarter, which is slightly above its normal, sequential seasonal growth of 2 percent to 3 percent. Sales of personal computers could get a lift from a good back-to-school season, strong demand for Dell products using Intel's new Sandy Bridge chip and end-of-year government spending, the company said.
Shares of Dell rose 5.5 percent in after-hours trading to $16.78.
Some analysts predict the consumers will continue to be a problem. "The consumer market is very weak and that situation is not going to improve," said Ashok Kumar, an analyst with Rodman & Renshaw. "The bigger picture is they are transforming into a solutions company, which will mean less volatility."
H.P. was sluggish in other segments of its business. H.P.'s services business, which caters to corporate clients, gained 2 percent, to $9 billion. Mr. Apotheker said inadequate investment was to blame, a thinly veiled criticism of his predecessor, Mark V. Hurd, who was known as a cost-cutter.
H.P. said that it planned to reorganize its services business to focus on more profitable and higher-growth categories. However, analysts worried about the effect on profits and the time it would take for the extra investment to pay off.
"We are making tough decisions today to set us up for the future," Mr. Apotheker said.
Louis Miscioscia, an analyst for Collins Stewart, said about H.P., "The frustrating thing is that it's been a series of issues over the past year, not just one issue here and one issue there."
A. M. Sacconaghi Jr., an analyst with Sanford C. Bernstein & Company, called the quarter disappointing. He added that "clearly, it's an inauspicious start" for Mr. Apotheker, who has spent just over six months on the job, and raises fears that the company is not going to be as strong under him as it was under Mr. Hurd.
Investors sent H.P.'s shares down 7.3 percent on Tuesday to $36.91. It was their lowest level in nearly two years.
H.P. and Dell are also feeling the effect of Japan's disasters. H.P. said it expected a $700 million hit in the second half of its fiscal year because of reduced demand for its products, higher costs for components and the need to ship its products by air rather than by sea.
Dell executives have said the company has experienced relatively minor disruptions in its supply chain as a result of the earthquake and tsunami in Japan during the quarter.
But Brian Marshall, an analyst with Gleacher & Company, warned that Dell, along with H.P., would probably face higher component costs over the next few quarters.
First Published May 18, 2011 12:00 am