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WRAPUP 3-Dell, HP profits rise, wave off slowdown fears

Thu Aug 19, 2010 8:43pm EDT

By Gabriel Madway and Alexei Oreskovic

SAN FRANCISCO, Aug 19 (Reuters) - Dell Inc (DELL.O) and Hewlett-Packard Co (HPQ.N) dismissed worries about weakening technology 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 (CSCO.O) CEO John Chambers' warned last week about "unusual uncertainty" in the global economy. [ID:nN1298256]

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. [ID:nN19273495]

But executives from the two largest U.S. personal computer makers waved off such fears, even as shares of Dell fell 3 percent after it posted slightly weaker-than-expected growth margins and HP fell about 1 percent. [ID:nN19275999]

"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.

Lesjak also fielded queries on a successor for former CEO Mark Hurd -- who stunned Wall Street by resigning two weeks ago over expense account inaccuracies linked to a female marketing contractor.

Though Hurd's exit has proved to be messy for the company, HP is doing its best to move on, naming an executive headhunting firm on Wednesday to lead the search for a new CEO. The company will consider both internal and external candidates. [ID:nN18272716]

Lesjak said HP is "looking forward, not back" and reiterated that shareholders are behind the company. She also suggested HP was not looking for major change in a new leader.

"When you have a winning strategy, I don't see the motivation to change it," she said.

It is unclear whether HP will go for an established technology veteran, or try to snag up-and-coming talent -- as it did in 2005 with former NCR chief Hurd, who is credited with reviving the company's fortunes. [ID:nN06147588]

Whatever the case, Wall Street will be closely monitoring the process. Hurd was lauded by investors for his cost-cutting, but the next CEO of the world's top technology company by revenue will be expected to ramp up growth -- no easy task for a company its size. [ID:nN15233713]

"Looking ahead, they're going to start running against tougher comparisons and potential currency pressures, so we're cautiously optimistic for the second half of the year," said Gartner analyst Martin Reynolds. "Although there are troubling signs, we think the technology industry will remain robust."

A DOMINANT FORCE

HP is a dominant presence in a number of technology markets, from PCs and printers to services and servers, and is a bellwether for spending in the sector. Its results on Thursday pointed to solid -- if unremarkable -- growth.

HP had reported preliminary results back on Aug. 6 -- when it also announced Hurd's stunning departure -- so Thursday's numbers had not been expected to move its stock, which has fallen 12 percent since Hurd resigned.

HP said earnings rose 6 percent as expected, helped by strength in servers and personal computers. [ID:nN1971881]

Storage and server revenue rose 19 percent, while PC revenue rose 17 percent and sales in the printing group climbed 5 percent. Lesjak did not point to any particular weakness in the market, other than in consumer notebooks.

"Europe has held up well and the printing group is skewing towards commercial versus consumer, which is a positive. They also showed solid progress in networking, which is a key segment we're watching in the battle against Cisco," said Morningstar analyst Michael Holt.

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

Dell beat Wall Street's profit and revenue estimates, and said it expected a continued pick-up in demand for PCs from corporate customers. But the company's gross profit margin lagged Wall Street expectations and its shares fell in after-hours trading. [ID:nN19275999]

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," Gladden 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."

Shares of Round Rock, Texas-based Dell, which are down roughly 31 percent since April, fell 2.4 percent to $11.75 in extended trading. HP closed at $40.76 on the New York Stock Exchange, and dropped to $40.39 after hours. (Reporting by Gabriel Madway and Alexei Oreskovic; Editing by Edwin Chan and Richard Chang)

http://www.reuters.com/article/idCNN198818620100820?rpc=44