Dell (NASDAQ: DELL), whose tech colleagues include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Intel (NASDAQ: INTC) and Hewlett-Packard (NYSE: HPQ), had a pretty decent third quarter. The bottom line came in at $0.37 per diluted share. That represented a growth rate of 9%, and it handily beat analyst expectations of $0.31 per share according to Thomson Reuters. I give Dell credit for the significant beat.
However, it should be noted that the bottom line was driven in part by share repurchases. There's nothing necessarily wrong with that, but it does put the big earnings beat in perspective. Indeed, on a dollar basis, profits decreased about 6%. Still, operating income rose 22% on a year-over-year basis.
But then there's the statement of cash flows. Cash was used for operations in the third quarter, a reported $86 million. Last year at this time, Dell generated $998 million from operating activities. That's something to at least think about. In fact, the press release said that slowing demand helped to worsen the cash conversion cycle. Now, I won't crucify Dell on this one cash-flow statement, because the company should still deliver a lot of the green stuff on an annual basis. But even the nine-month statement shows a decline in cash from operations. Again, it's something an investor must consider, and it puts that earnings beat in perspective.
Business is crummy, but at least the Macy's Thanksgiving Day Parade is a go. It's hard to believe, but the day of thanks is upon us. Despite the struggling economy, a near depression, and what is expected to be a long recession, we do have much to be thankful for.
What started as a pricking of the speculative bubble in housing became a wake up call for the dangers of too much debt. We are full bore in crisis mode and, yet, if you really look at it all, things are not that bad. Yes, your portfolio may be down 40% or more, but most of you still have jobs and interest rates are still very low. Bad as this has been, it could be much worse.
Despite the recent news that Hewlett-Packard (NYSE: HPQ) expects first-quarter profits, ending Jan. 31, 2009, to meet or beat current expectations, most companies dare not provide any guidance as the train wreck economy makes it difficult at best to predict sales and revenue.
That certainly is the case at Macy's (NYSE: M). Today, the large department store leader announced third-quarter profit ending Nov. 1 that missed expectations by a wide margin. Macy's lost $42.8 million, or 31 cents per share.
This should come as no surprise, but unfortunately analyst estimates were way off the mark. They were expecting a loss of three cents on higher revenue.
Going forward, the company is in self-preservation mode. Macy's is reducing capital expenditures to $75 million in fiscal 2009, down from the $125 budget for the current year.
The question for M is, can it survive a period of multiple quarters of losses? With $10 billion of debt on the balance sheet, the company has some serious issues to resolve in 2009.
Before today's announcement, analysts had been expecting the company show earnings of $1.00 a share when it announces its official numbers next Monday (Nov. 24), but the company stated today it is now expecting to show adjusted earnings of $1.03.
The decision to lift its forecast has resulted in some nice gains for HPQ shareholders today, as the stock has traded up 10.5% to $32.41, and earlier in the session hit an intraday high all the way up at $33.84.
According to today's announcement, the company is benefiting from "global reach, diverse customer base, broad portfolio and numerous cost initiatives."
Tech stocks are following financials into the toilet. Yesterday, Microsoft (NASDAQ: MSFT), the world's largest software company, said it was taking a look at hiring. That is probably code for the firm saying it plans to cut or level out expense growth.
According to Reuters, Microsoft said, "Given the current economic environment we are taking the prudent step of reviewing our hiring plans and will make some adjustments as appropriate."
There had been some hope that technology spending would be close to immune to a slowing economy. Recent earnings from Oracle (NASDAQ: ORCL) confirmed that. But, the rapid deteriorating of GDP improvement and employment are leading many analysts to think that economic conditions have gotten much worse in the last two weeks.
In just five days, shares of IBM (NASDAQ: IBM) are off over 12%. Shares in Hewlett-Packard (NYSE: HPQ) are down 8% over the same period.
Tech has been one of the rapid growing sectors in the economy over the past two years. If hiring stops for these companies, or if the industry goes into a cycle of layoffs, it could deepen the recession very quickly.
Douglas A. McIntyre is an editor at 247wallst.com.
I think IBM (NYSE: IBM), whose colleagues include Microsoft (NASDAQ: MSFT) and Hewlett-Packard (NYSE: HPQ), is a great long-term idea. Unfortunately, it might be a bad short-term idea. According to news from earlier in the week, some analysts are speculating that Big Blue may miss earnings expectations for the third quarter.
The negative catalyst? You guessed it. The terrible economic calamity that is tearing down Wall Street institutions is threatening the iconic technology concern. Not even the Cloverfield monster could do as much damage to Wall Street as what has been done by those mutant-mortgage investment vehicles. Not even close. And the theory now is that IBM may become the victim of its exposure to both customers in the financial sector and to the financing it extends.
However, if you read a rebuttal by my colleague Douglas A, McIntyre, you'll see that he doesn't buy that IBM is going to miss come the next report. He brings up some good points. In fact, he brings up probably the best point there is: IBM hasn't warned yet, and if it needed to, it would have. So the stock sold off during the week in part because of all this debate about Q3. It begs the question: Does this sell-off make IBM a buy?
HPQ opened this morning at $44.27. So far today the stock has hit a low of $41.95 and a high of $44.30. As of 12:10, HPQ is trading at $43.00, down $1.95 (4.4%). The chart for HPQ looks neutral and S&P gives HPQ a very positive 5 STARS (out of 5) strong buy ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just two weeks as long as HPQ is above $37.50 at October expiration. Hewlett-Packard would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
HPQ hasn't been below $39.99 at all in the past year and has shown support around $41 recently.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls a bullish hedged position in HPQ.
Although global PC sales leader Hewlett-Packard Corp. (NYSE: HPQ) was rumored yesterday to be possibly shuttering its high-end Voodoo PC division, the company responded this morning saying that it was "incorrect" that the company was shutting the division. However, there will probably be cuts in the division, which HP bought about two years ago in an effort to capture more profit from gamers who prefer expensive PCs used to play graphically-intensive games.
As is standard in the corporate world, HP said "We continually assess and rebalance the size of our work force relative to the business environment and market conditions." But would HP really want to shut down a division that the company bought in response to Dell, Inc. (NASDAQ: DELL) buying Alienware earlier in the same year? Has the high-end gaming and specialty/boutique PC market gone south? HP isn't saying, of course.
What may be happening is HP is integrating Voodoo's operations from its current Canadian location into HP's fold. The company has already said that the Voodoo brand will enter the Personal Storage Group (PSG), HP's PC division that has been responsible for the company becoming the largest global PC vendor. Think HP is moving Voodoo PC manufacturing to somewhere in its PacRim facilities, or even to some of its contract manufacturers in Asia? You're probably right.
Hewlett-Packard Corp. (NYSE: HPQ) continues to lead the PC market in sales, and the addition of a laptop model that will run an unprecedented 24 hours on a single battery charge may boost its fortunes even more. The holy grail for those who use portable electronics constantly is battery life. Although battery technology has improved in the last decade or so, the ever-increasing demands from portable electronics like cellphones and laptops mean smaller battery times and more recharging.
HP's new EliteBook 6930p will cost anywhere from $1,800 to $2,000 online, and will come with an optional battery and a solid-state disk drive to help it get to the specified 24-hour battery life (which is probably ultra best-cast scenario). Dell's recently-announced Latitude E6400 reportedly sees 19 hours on a single charge. Perhaps the consumer and business PC markets are about to see a shift away from being compared on their commodity parts to something that really matters to most users -- battery life.
With PCs accounting for a third of HP's total revenue, it's the $30 billion question the company has to ask -- how can it keep growing that segment of its business? Desktop PCs, also at work, are slowly being replaced with laptops -- allowing workers to work from anywhere, the goal of the corporate kingdom -- and laptops are slowly but surely making the standard desktop PC irrelevant.
But that comes with a price: battery life really needs a boost. After all, the definition of a laptop basically implies that the customer needn't be tied to a power outlet at all times. In HP's case, the new laptop only costs $1,200 before the optional $150 extended battery and the $900 solid state disk drive. Are those items worth the price to get an entire day of battery life, though? Sales of the new system will tell us.
Hewlett-Packard Corporation (NYSE: HPQ) may be playing with fire when it comes to one of its biggest partners. Microsoft Corp.'s (NASDAQ: MSFT) Windows Vista operating system that ships on virtually every HP consumer and business PC system is so sandbagged and hard to use that HP may be installing its own software to allow consumers to easily do things like view movies, digital pictures, and other seemingly simple tasks that many consumers find cumbersome and precarious even with Microsoft's vaunted "easy to use" Vista operating system.
It's a pretty big statement that the largest PC maker in the world wants to bypass the operating system software from the world's largest software company to make sure consumers can do things without any muss or fuss. HP's customer experience group, headed by Susie Wee, stated rather pointedly that it wants to make using a computer extremely simple. As Phil McKinney with HP's Personal Storage Group (PSG) division puts it, "Our customers are looking for insanely simple technology where they don't have to fight with the technology to get the task done ... for us, it's about innovating on top of Vista."
Yikes -- innovating on top of Vista? That's a rather large slap in the face of a company with enormous market clout in the software field, and a rather sound beating for what is billed as Microsoft's easiest to use operating system ever. HP wants to be less dependent on the release schedule of Microsoft's future versions of Windows, including the current Vista release. It's all about giving the consumer choice, right?
Right now, the uninformed consumer has little choice but to buy a new PC with a copy of Windows Vista already installed. But Apple, Inc. (NASDAQ: AAPL), who markets its MacOS operating system as extremely simple to use and live with, is making inroads into the PC market more than ever, and larger Windows distributors like HP need an alternative to ensure it doesn't lose customers to the resurgent Apple. Giving consumers an alternative to Windows Vista may just be the right recipe at the right time, yes?
Hewlett-Packard Corp. (NYSE: HPQ) will soon be packaging one of its laptop PCs in a fabric bag instead of cardboard boxes after heeding partner Wal-Mart Stores, Inc.'s (NYSE: WMT) request to offer a more ecologically sound packing solution for the laptops it sells through the giant retailer. By making this packaging change, materials like foam, cardboard and plastic were reduced by 97%, according to HP.
The Hewlett-Packard Pavilion PC, which sells for $798 on Wal-Mart shelves, will probably see a lot of consumer traction for this move. The company has stated several times that it's really trying to become greener. In addition to partially powering some of its San Diego-area buildings with solar power and being green globally, packaging a good laptop seller at the world's largest retailer in ecologically-sound packaging will make an impression to those consumers paying attention.
But that's not the end -- HP can also ship 25% more laptops in each truck as a result of the packaging change, saving transportation costs in addition to landfill or recycling space. Now all the company has to do is make its packaging more of a marketing point than the commodity laptop PC being sold inside of it. If HP can manage that, it really will have a sales winner on its hands.
Hewlett-Packard Corp. (NYSE: HPQ) spared no expense this past Monday when it brought job cuts to a Boise, Idaho printing and imaging facility. On Labor Day, the world's largest PC manufacturer said, "In some cases, parts of IPG's business will experience reductions while investments will be made in high growth segments of the business. These decisions will be made at the level of the global business unit and are not specific to HP sites." Standard corporate-speak in relation to business unit realignment and reorganization, eh?
HP announced this reorganization back in June, so it should come as no surprise. Idaho's Worker Adjustment and Retraining Notification Act states that companies laying off 500 or more employees must provide 60 days notice to affected employees or face a fine equal to a cumulative amount reflective of 60 days pay times the number of employees being laid off. Sources inside HP apparently stated that the company is giving affected employees six weeks to find another position within the company before being given a pink slip.
HP continues to lead the pack when it comes to the manufacturing of PCs as well as printing and imaging equipment. This recent reorganization will realign HP's current five business units inside its IPG (Imaging and Printing Group) to three business units to maximize efficiency out of the entire section of HP's business. HP was pretty adamant in June that layoffs would not be coming to its Boise operations as an effect of something negative in the company's business, but as a result of business unit realignment.
The top line was okay. Net sales increased 11% to $16.4 billion, beating estimates that called for growth of around 8%. But earnings per diluted share were not okay. They came in at 31 cents, a 6% decrease in terms of year-over-year comparisons. Wall Street was looking for 36 cents per diluted share. Costs went up at a greater rate than sales growth, driving the gross margin down. As can be seen, Dell needs to better manage its cost structure so that it may protect its margins. It's a shame that the company couldn't have grown the bottom line considering the nice revenue gain.
Not only was the profit drop disillusioning, but the operational cash flow was likewise disappointing. It dropped 40% during the quarter, and it decreased 29% over the least six months. Dell watches its cash flow carefully, and it would like the money generated from operations to exceed the net-earnings figure. So far, the company has fallen short in this regard. However, according to the transcript, Dell's CFO, Brian T. Gladden, believes that operational cash flow will exceed net earnings. Shareholders obviously hope that he'll be ultimately proven correct on this prediction.
Dell (NASDAQ: DELL), a PC maker whose rivals include Apple (NASDAQ: AAPL) and Hewlett-Packard (NYSE: HPQ), is due to report second-quarter numbers on Thursday, August 28, after the market close. It's going to be interesting to see what the company says about demand levels for its PCs. We're still working our way through a tough economic period, so in some respects, this will be a sign of how the consumer is faring.
Of course, Dell has been trying to stage a comeback lately even without regard to the economy. As with any once-hot growth stock, there comes a time when the capital appreciation starts to slow and gains are digested. Dell's shares have cooled over the last several years. Dell's stock has decreased over 21% over the five-year timeframe, and 29% over the last three years.
Lately, though, the stock has been stronger and, appreciating over 20% in the past six months, and nearly 7% in the past month alone.
Dell is expected to report a double-digit increase in the bottom line this Thursday. The call is for 36 cents per share, according to Earnings.com. Last year at this time, Dell posted earnings of 32 cents per share. Looking at the history of Q2 results, I'd say it's a decent bet that the company meets expectations. If management were to blow the estimates out of the water, it would be impressive, but my gut says that won't happen. According to Trey Thoelcke, top-line revenues should expand by roughly 8%.
The roots of Avago Technologies Ltd. go back to the early 1960s when it was a part of Hewlett-Packard (NYSE: HPQ). Since then, the company has been spun out (in 1999) and even underwent a leveraged buyout -- with the private equity sponsors of KKR and Silver Lake (in 2005). They both own about 80.9% of the outstanding shares.
Now, Avago is prepping to become a public company again. Although, in light of the current state of the markets, the deal could be a tough sale.
Avago develops a wide range of analog semiconductor devices (the portfolio includes about 7,000 products). There are more than 5,000 patents on the technology.
Moreover, Avago's base is extensive, with about 40,000 customers across the world. For the past 12 months, the company posted revenues of about $1.527 billion.
Interestingly enough, one of the underwriters on the public offering is KKR Capital Markets. Yes, this is KKR's attempt to diversify its business platform. No doubt, this will be a critical test case as KKR plans to become a public company in Q4.
If you want to learn more about the public offering, you can find the prospectus at the SEC website.
Business is crummy, but at least the Macy's Thanksgiving Day Parade is a go. It's hard to believe, but the day of thanks is upon us. Despite the struggling economy, a near depression, and what is expected to be a 
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