HP Focused on Microsoft, Palm OSs for Tablet PCs

Executives at Dell and Hewlett-Packard gave updates on their companies’ tablet PC plans, in earnings calls late Thursday, while reporting mostly improved results for their most recent quarters. Despite the improved results, shares in HP fell 91 cents, 2.23 percent Friday possibly in part due to it reporting weakness in the consumer sector. Dell closed up 3 cents in an otherwise down market.

Tablets were “a big part of the reason” why HP recently bought Palm, said Todd Bradley, executive vice president of HP’s Personal Systems Group (PSG). “You'll see us with a Microsoft product out in the near future and a webOS based product in early 2011,” he said, referring to planned Windows- and Palm webOS-based products from HP.

Dell CEO Michael Dell expressed little concern about the impact the iPad is having on computer sales this year. “I'm not sure that it’s a huge percentage” of the PC market that tablets are taking this year, he said. “Certainly there’s a lot of excitement around Android and we're participating in that,” he said. He predicted “you'll see a lot more” tablets next year.

HP “saw some softness in our consumer notebook market” in Q3 ended July 31, Bradley said. “I think back-to-school started somewhat late for us, but we've certainly seen it start,” and “we're seeing things are on track” now, he said.

Dell’s consumer business revenue for Q2 ended July 30 “was flat at $2.9 billion and generated a $21 million operating income loss,” said Chief Financial Officer Brian Gladden. The company, however, is “confident we can improve our consumer business operating margins to the 2 percent level in the near-term,” he said. The company has “been repositioning the business, which involves targeting our efforts to the right geographies, products and customer sub-segments,” he said.

Dell’s Q2 GAAP profit grew to $545 million, 28 cents per share, from $472 million, 24 cents, in Q2 last year. Revenue grew 22 percent to $15.5 billion, driven by significant growth globally in commercial customer demand for Dell enterprise solutions, it said. “The key to our results continues to be strong global commercial demand, especially in servers and networking, storage and services,” where revenue jumped 43 percent to $4.3 billion, said Gladden. Dell also “saw particular strength in large enterprise and small and medium business,” he said. “Software and peripherals remains an important business for us, growing revenues at 6 percent, driven by strong performance from displays and electronics and peripherals,” he said.

"Demand trends continue to be favorable” for Dell, especially in the commercial sector, Michael Dell said. “In the client business, we're seeing the corporate refresh cycle continue, as both notebooks and desktops demonstrate a strong revenue and unit growth.” Citing IDC data, he said about 65 percent of enterprises “have already begun or will begin their migration to Windows 7 within the next six months and 89 percent of companies have definitive plans to begin their migration to Windows 7 within a 24-month period.” Dell said he was “also very encouraged by the progress in our enterprise business” as “customers are increasingly choosing Dell servers, which grew 35 percent in Q2.” Currently, “two out of every five” servers sold in the U.S. and “one out of every three servers sold worldwide are Dell” servers, he said.

A decline in component pricing “could be a catalyst in terms of overall market pricing,” Gladden said. “Component costs clearly were the biggest pressure on gross margins” in Q2, impacting Dell in the commercial and consumer sectors, he said.

HP’s Q3 revenue grew 11.4 percent from Q3 last year to $30.7 billion. Profit grew to $1.8 billion, 75 cents per share, from $1.7 billion, 69 cents. PSG revenue increased 17 percent from Q3 last year to $9.9 billion, with total unit shipments growing 12 percent, said Cathie Lesjak, HP chief financial officer and interim CEO. Notebook revenue grew 10 percent while desktop revenue grew 27 percent and workstation revenue increased 54 percent, she said.