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HP Gains Ground As Dell's Woes Continue

The battle lines are shifting in the PC wars as HP rebounds while Dell struggles.
Dell still ships more PCs than anyone on earth, but the one-time industry darling looks to be trading places with former industry whipping boy Hewlett-Packard.

HP brought on nuts-and-bolts CEO Mark Hurd to replace the more flamboyant Carly Fiorina early last year and began a restructuring that included extensive layoffs. Last week, Hurd expressed pleasure with "another solid quarter," while Dell grappled with continued earnings declines. Chairman Michael Dell announced a "full examination of all procurement and supply chain practices."

If what Dell CEO Kevin Rollins called a "clearly disappointing" quarter weren't bad enough, the company is fighting to protect its hard-won reputation as it recalls 4.1 million laptop batteries after scattered reports of the devices bursting into flames (see story, "Dell Customers Have To Wait Four Weeks For Replacement Batteries"). Dell CFO James Schneider also revealed last week that the Securities and Exchange Commission began an "informal" investigation of the company in August 2005. The inquiry involves potential accounting irregularities before 2006, but Dell says it doesn't expect the outcome of the investigation to significantly impact its financials.

Dell reported that second-quarter sales rose 5% compared with the year-earlier quarter, to $14.1 billion. But the results marked the company's second consecutive quarter-to-quarter decline in sales and profits. Dell blamed a year-over-year 51% quarterly profit decline, to $502 million, on an overly aggressive pricing strategy.

Dell hopes to reverse the slide with a shift from its long-held Intel-only policy. Dell previously unveiled plans to begin selling a four-socket Advanced Micro Devices Opteron-based server by year's end. Last week, it announced further plans to introduce AMD processor-based Dimension desktop PCs in September and two-socket Opteron-based servers before 2007.


HP CEO Mark Hurd


Dell CEO Kevin Rollins

CEO Mark Hurd has cause for celebration ...
  • Revenue up 5% to $21.9 billion
  • Profit up 1,784% to $1.38 billion
  • Desktop sales up 5%, notebooks up 14%

... while CEO Kevin Rollins winces
  • Revenue up 5% to $14.1 billion
  • Profit down 51% to $502 million
  • Desktop sales down 4%, notebooks up 8%

Data: Year-over-year data from earnings reports

Smaller Piece Of The Pie

The decision to offer additional AMD products comes as Dell's market share erodes. The company shipped 9.7 million PCs in the second quarter, for a 17.7% market share, marking 11.6% growth in units shipped over the same quarter last year. HP sold 8.1 million PCs in the second quarter, for a 14.8% market share, but racked up growth of 13.8%.

AMD's share of x86 server processor sales has grown from 22% in the first quarter to nearly 26% in the second, according to Mercury Research.

Meanwhile, HP remains on a roll. The company averaged $1.1 billion in profits on revenue of $22.5 billion over the past four quarters. HP garnered an average of $780 million in earnings on sales of $21.3 billion in the four quarters before that. Profits for the most recent quarter rose to $1.38 billion from $73 million a year before, when it took a charge of almost $1 billion related primarily to taxes on income earned overseas.

"We are demonstrating that HP is a great company that can continue to perform better across the board," Hurd said last week.

HP's Personal Systems Group reported a 14% increase in notebook sales and a 5% boost in desktop revenue. Enterprise Storage and Servers grew 3%, including a 6% uptick for industry-standard servers and a 37% jump for blade servers. HP Services' revenue grew 1%.

Despite setbacks in its core markets, there were positives for Dell in the quarter. Its storage partnership with EMC continues to produce dividends, with sales climbing 36% to $500 million. Meantime, its services business grew 21% in the quarter to $1.4 billion.