Dell and HP shake off slowdown fears

SAN FRANCISCO Thu Aug 19, 2010 7:19pm EDT

A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010. REUTERS/Thierry Roge

A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010.

Credit: Reuters/Thierry Roge

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SAN FRANCISCO (Reuters) - Dell Inc and Hewlett-Packard Co dismissed worries about weakening tech demand, reporting broad-based strength from corporate customers and only hints of weakness from consumers.

Both faced questions on Thursday about the strength of the recovery in spending on technology, after Cisco Systems Inc CEO John Chambers' warned about "unusual uncertainty" in the global economy.

Analysts said fears persisted about the strength of any recovery in consumer spending, as growth moderates in Europe and China as well as in the United States.

But executives from the two largest U.S. personal computer makers waved off such fears.

"We saw better-than-normal quarterly seasonality, as well as good balanced performance across all of our three regions," said Cathie Lesjak, HP's interim chief executive, on a conference call with the media.

Dell beat Wall Street's profit and revenue estimates, and said it expected a continued pick-up in demand for PCs from corporate customers for the next several quarters. But the company's gross profit margin lagged Wall Street expectations and its shares fell in after-hours trading.

HP -- posting its first quarterly report since the ouster of CEO Mark Hurd -- said earnings rose 6 percent as expected, helped by strength in servers and personal computers.

Storage and server revenue rose 19 percent, while PC revenue rose 17 percent. Lesjak did not point to any particular weakness in the market, other than in consumer notebooks.

"People were spooked after Cisco cited uncertainty and now people are more concerned about how the rest of the year will play out," said Morningstar analyst Michael Holt.

REFRESH CONTINUES

On the corporate side, Dell Chief Financial Officer Brian Gladden said the refresh cycle was proceeding as forecast, adding that he expects component costs to start to come down in the fiscal third and fourth quarters.

Dell said it expected demand for PCs among corporate customers to continue for the "next several" quarters. It said it expects "seasonal improvements" in the third quarter, thanks to sales to the federal government and business customers, with a resulting "pick-up in the low single digits."

"This is a pretty stretched-out cycle and we think it'll continue for several quarters," he said in an interview with Reuters. For the fiscal second quarter, "commercial growth was really the key for us, servers, networking systems, storage, services. That was up about 43 percent."

Apart from questions about the strength of the global tech recovery, HP executives are also likely to field queries on its CEO search, officially launched Wednesday and encompassing both internal and external candidates.

HP, the world's largest technology company by revenue, forced out Hurd on August 6 for expense account irregularities related to a female contractor. Hurd, CEO since 2005, had been credited with reviving the company's fortunes.

HP shares have fallen about 12 percent since Hurd left. The stock closed at $40.76 on the New York Stock Exchange, and dropped to $40.50 after hours.

Shares of Round Rock, Texas-based Dell, which are down roughly 31 percent since April, fell 2.6 percent to $11.73 in extended trading.

(Reporting by Alexei Oreskovic and Gabriel Madway; Editing by Richard Chang, Leslie Gevirtz)

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