A trio of key hardware companies---Dell, HP, NetApp---report earnings this week and each one brings a unique thread of insight for folks trying to get a gauge on tech demand.
For Dell and HP, the themes will be similar. Corporate demand for servers and other gear are expected to overshadow weak consumer demand for PCs. By most counts, back-to-school shopping season wasn't exactly a boon for the PC industry.
"Our checks indicate consumer PC weakness has intensified as back-to-school PC sales are disappointing; however, enterprise spending continues," said Jefferies analyst Peter Misek.
On the PC demand front, Dell may be in the best shape relative to consumer demands. After all, Dell isn't all that exposed to consumer demand. However, Dell is tethered to corporate PC upgrades and the public sector, which accounted for 27 percent of revenue in fiscal 2011.
Deutsche Bank analyst Chris Whitmore said that Dell should be able to deliver second quarter earnings on par with the 49 cents a share on revenue of $15.75 billion Wall Street expects.
For Dell, weak consumer demand may pressure revenue growth, but actually boost profit margins. Dell makes far more money from corporate PCs and servers than it does the consumer business. "We expect solid results in enterprise and SMB to partially offset soft consumer PC unit demand," said Whitmore.
Stifel Nicolaus analyst Aaron Rakers said that Dell appears to have had a solid server sales performance in the last three months.
HP has many more moving parts. HP's enterprise businesses across storage, servers and networking are huge. But HP's consumer business is also massive when you consider PCs and printers. The big wild card for HP will be whether it says anything about the TouchPad sales.
Wall Street is expecting HP to report earnings of $1.09 a share on revenue of $31.2 billion. Analysts widely expect HP to benefit from falling commodity prices. For a company with HP's scale, cheaper component pricing can fall right to the bottom line.
However, HP will have to address its investment into its services business and give some color on its WebOS plans. HP CEO Leo Apotheker will also have to put on a good performance on the conference call.
NetApp is another hook into tech spending. Wall Street is expecting NetApp, the No. 2 to EMC in storage, to deliver fiscal first quarter earnings of 55 cents a share on revenue of $1.51 million.
Of the trio of hardware companies reporting, NetApp appears to be a lock to deliver strong results. Enterprise demand for storage remains strong because of data center upgrades and server consolidation. Even in a downturn, virtualization and server consolidation will remain key themes.
We believe strength in NetApp's channel business continues with some contacts pointing to a strong July. Despite turbulence in the capital markets, we do not believe business conditions have changed materially since NetApp provided guidance in late June.
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