* HP, Apotheker need to regain investor confidence
* Opportunity arises with quarterly results in coming week
* Dell faces questions on government spending
* StarMine sees HP, Dell shares undervalued
By Gabriel Madway
SAN FRANCISCO, Nov 16 Hewlett Packard Co
(HPQ.N) hopes to shift investors' attention from its internal
upheaval to financial performance, with an imminent quarterly
report expected to again showcase its reputation for solid --
if unspectacular -- growth.
HP shares have suffered after months of grappling with the
messy exit of Mark Hurd as chief executive, followed by a nasty
public fight with Oracle Corp ORCL.O and its CEO Larry
Ellison over the hiring of Silicon Valley outsider Leo
Apotheker as its new chief.
HP's financial report comes next Monday, following that of
longtime rival Dell Inc DELL.O, which will be closely watched
for signs of the same cooling in government spending that
plagued Cisco Systems Inc (CSCO.O). [ID:nN10245398]
Amid the dismal headlines, HP investors have two burning
questions: Did performance slip with Hurd's exit? And what
exactly is this Apotheker fellow all about?
Morningstar analyst Michael Holt said there was no evidence
HP's execution was hurt by Hurd's departure -- or the jockeying
by executives to succeed him.
"They did execute, and I think they will come in and give
that signal of stability," Holt said. "They're really trying to
calm the waters with investors."
Gleacher & Co analyst Brian Marshall said Wall Street is
eager to hear from Apotheker, who started work on Nov. 1 but
remains a mystery to many investors. [ID:nN01194360]
"Leo has to make a good appearance," Marshall said. "The
numbers are important, but it's more about how he comes
Apotheker's ride has not been smooth thus far. Oracle
claims he is ducking a subpoena to testify in its high-profile
copyright case against SAP AG (SAPG.DE), where Apotheker was
once CEO. HP says Oracle is simply trying to harass him.
A PR NIGHTMARE
Public relations aside, HP will provide a snapshot of
global IT demand when it reports results next Monday. The
world's largest tech company by revenue has hinted at a solid
upcoming year and has stressed its investments after years of
cost-cutting under Hurd. [ID:nN28273797]
For the fiscal fourth quarter ended Oct. 31, Wall Street
expects HP to report earnings of $1.27 a share on revenue of
$32.8 billion. HP has beaten or matched analysts' earnings
estimates every quarter over the past two years.
Its shares are still down about 10 percent since Hurd was
forced out on Aug. 6 and -- according to Thomson Reuters
StarMine -- may be undervalued. Employing a StarMine
quantitative model, HP shares have an intrinsic value of $75.33
-- above their closing price of $41.80 on Tuesday.
IT services and printing are HP's bread and butter,
providing nearly half of revenue and two-thirds of operating
profit. But strength in the quarter could come from servers and
storage, as well as in networking, where there is evidence that
the company is beginning to take market share from Cisco.
Although HP lost two percentage points of personal computer
market share in the July-September period according to IDC, its
operating margin should benefit from improved component costs.
Dell is much more of a question mark, analysts say.
Investors in the No. 2 PC maker, which reports earnings on
Thursday, got jittery last week after Cisco's weak revenue
outlook sent its shares plunging. [ID:nN11206640]
Although it is unclear whether the drop in government
spending highlighted by Cisco is a broader issue, analysts
warned of Dell's potential exposure. The company's public
business provides around a quarter of its revenue.
"Cisco's commentary raises a red flag on Dell's above-peer
government exposure," JP Morgan analyst Mark Moskowitz said in
a research note.
Dell, which has been in turnaround mode for some time, has
been a major beneficiary of the corporate refresh cycle, where
companies spend billions to upgrade aging IT hardware.
But the company has struggled to show progress on
profitability. Despite efforts to diversify, more than half its
revenue still comes from its low-margin PC business.
Investors will therefore once again focus on Dell's gross
margin, which Wall Street has targeted at 17.5 percent.
"The question really is, can they turn the growth they've
seen into profitability?" said Morningstar's Holt. "That's
where they've really struggled, in the operating leverage, or
Still, Dell should benefit from an effort to improve
margins in its consumer business, which has been a drag on
profitability, and better component costs. Analysts are
expecting Dell to report earnings of 32 cents a share on
revenue of $15.7 billion.
According to StarMine, Dell's shares are also undervalued,
with an intrinsic value of $18.25 versus Tuesday's close of
(Reporting by Gabriel Madway; Editing by Edwin Chan and