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Wednesday, July 19, 2006

Can Hewlett-Packard Fight The PC Downturn?


It's hard to complain about HP's stock performance. The shares are up from a 52-week low of $23.66 to just below $32. Wall St. loves the new CEO and his restructuring has caught the imagination of a large number of investors.

The question about HP is fairly simple. Can it dodge the bullet of falling PC and server sales? Needham & Co. downgraded Intel and analysts expect EPS to drop 57% from a year ago when the company reports. Wall St. also thinks sales could be off as much as $1 billion from a the period a year ago. At $18.26, Intel is just a hair's breath from its 52-week low of $16.75, and the company has lost roughly $70 billion in market cap in less than a year.

Word on the Street is not much better on Advanced Micros Devices. Intel's price cuts and new chip products are forcing AMD to cut margins and defend its product line. The company said sales would be down 9% in Q2.

At the other end of the PC spectrum, no one seems to believe that Dell can recover from its malaise. According to, IDC has revised 2006 PC growth from 6.8% to 5.7%. Dell has not indicated that it will have a recovery soon and its shares have fallen to under $22 down from a 52-week high of nearly $42.

In its last quarter, HP did over $3.5 billion in desktop sales and over $2.8 billion in notebooks. These figures do not include HP's printer and server businesses which also may face a slowdown as purchases of x86 based products and add-ons falls. Since the company's total revenue for the last quarter was $22.8 billion any drop-off in these sectors could hurt the company's result.

Oddly, HP's stock trades as if the company is immune to the issues facing the rest of the industry.

Douglas A. McIntyre can be reached at He does not own stock in companies that he writes about.

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