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.
Best Buy, Inc. (NYSE:BBY ) is staging a marketing event to deploy two "store brand" laptops that will hopefully address two major complaints of laptop PC buyers - weight and battery life. Of course, this has been the argument for portable PCs for over a decade. The two new laptops are manufactured by Toshiba and Hewlett-Packard Corp. (NYSE: HPQ) and will be sold under the faux brand "Blue Label." This name probably signifies Best Buy's official corporate color more than anything.
Of course, both laptops will retail for $1,199, a hefty price for anything but a high-end retail laptop PC in 2008. If Best Buy is going to price these at $1,200, it better darn sure hope that there is something revolutionary about these two models. Specifically, a battery life increase of at least 50% under normal operating conditions, as well as at least 1.5 pounds less in weight than comparative models that cost half as much. A pound is hugely significant in the laptop PC weight arena -- but Best Buy needs to go beyond that for such a premium price. Agree? Disagree?
Although Best Buy is marketing these as designed by "customer feedback," there's nothing earth shattering here. Battery life and weight have always been at the forefront of wants and needs from the laptop PC consumer. Manufacturers have seen fit to continue making their wares compete with features and aesthetics more than what customers have asked for, such as Apple, Inc. (NASDAQ: AAPL) who clearly gets it. But the Windows PC world? Not so much. Will this be another empty promise or a half-hearted marketing move? We'll see once these two models hit store shelves and customers actually start using them.
Hewlett-Packard's (NYSE: HPQ) CEO, Mark Hurd, certainly knows how to hit his numbers. But this often means making some extremely tough decisions.
The latest tough decision: HP will lay off 24,600 employees.
The layoffs, which represent 7.7% of HP's workforce, will occur over a three-year period. The key reason is to integrate the massive acquisition of EDS. The restructuring moves are expected to result in annual cost reductions of $1.8 billion or so.
Interestingly enough, about half of the layoffs will come from the US. In the hyper-competitive information technology space, it's often cheaper to send jobs offshore.
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.
Rival home improvement chains Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW) are scheduled to report quarterly results this week. Not surprisingly, given the ongoing housing slump, analysts surveyed by Thomson Financial on average expect both companies to post earnings lower than in the same period a year ago. For Home Depot, that's 61 cents per share, down 20.8%, and for Lowe's, 56 cents per share, down 16.4%. Meanwhile, cabinet maker American Woodmark Corp. (NASDAQ: AMWD), for whom Home Depot and Lowe's are major distributors, is also expected to report lower earnings: 11 cents per share, down 67.6%.
The presidential campaigns have prompted much discussion of energy policy and alternative energy sources. Some solar-energy-related concerns are scheduled to report this week, and expectations seem to be high. Trina Solar Ltd. (NYSE: TSL) is expected to report 81 cents per share earnings, up 67.9%; ReneSola Ltd. (NYSE: SOL) is expected to post earnings of 32 cents per share, up 62.5%; and Suntech Power Holdings Co. (NYSE: STP) is expected to have earnings of 32 cents per share, up 21.9%. Even China Sunergy Co. Ltd. (NASDAQ: CSUN) is expected to have swung to a profit of 3 cents per share, from a per-share loss of 14 cents a year ago.
MOST NOTEWORTHY: Lehman, PNM Resources and Hilb, Rogal and Hobbs were today's noteworthy downgrades:
Wachovia downgraded Lehman (NYSE: LEH) to Market Perform from Outperform citing the larger capital raise, poorly marked assets, and lack of confidence.
Jefferies downgraded PNM Resources (NYSE: PNM) to Hold from Buy citing valuation and lower contribution from the company's First Choice supply subsidiary.
Hewlett-Packard Corp. (NYSE: HPQ) has just dealt Yahoo Inc. (NASDAQ: YHOO) a huge blow at the worst possible time. The world's leading PC maker and largest seller in hot laptop PC category will be replacing Yahoo! with Microsoft Corp. (NASDAQ: MSFT)'s Live Search services starting next January.
It's been my experience that a majority of PC users use the default portal and search engine services that come installed on their PCs. Moving Yahoo! off the world's best-selling PC line won't do anything to help Yahoo! but will do everything to help Microsoft compete more head-on with Google, Inc. (NASDAQ: GOOG). That little web browser toolbar many of us use is billion-dollar real estate, and Yahoo!'s is about to be booted off in favor of Microsoft's.
Microsoft said that the upcoming search partnership with the world's largest seller of PCs would deliver "a very high" volume of search queries. This is just what Microsoft needs to more effectively compete in the internet search arena with Google, but it won't mean serious competition with the search leader either. Still, more search revenue for Microsoft will definitely be seen as a good thing. Meanwhile, Yahoo! will be pondering options on where its future rests, but we'll probably get a better idea before 2009 once the company has its annual shareholders' meeting some time in July.
I used to be a big fan of Dell (NASDAQ: DELL) years back, but I've since been cool on the company due to the challenges it's faced as of late. Yet the company's first-quarter stats, released on Thursday after the closing bell, were interesting. Revenues increased 9% to a whopping $16 billion. Net income increased 12% to $0.38 per share. Briefing.com says that Dell beat on revenues and earnings per share, the latter by a nice $0.04.
Operating income actually dropped, however, 4% on a dollar basis. Still, in the after-hours session, investors sent the shares higher by nearly 10%. One thing I liked about the quarter was that operational cash flow was much healthier this time around. Last year, Dell needed to use $99 million to fund operations; this year, Dell booked $143 million in cash from operations. Awesome improvement. And here's something else shareholders should look positively on: management apparently wants to focus on having operational cash flow exceed net income. A laudable goal in my book.
So, this was a decent quarter. Am I buying? Well... not exactly. Personally, if I want to play personal computers, I'm probably more likely to look at either Hewlett-Packard (NYSE: HPQ) or Apple (NASDAQ: AAPL). I recently wrote about H-P's good quarterly numbers, and as far as Apple goes, that stock is definitely the one to go with in terms of strength and excitement (if you can time the entry points properly, of course). Yeah, I'm just not feeling Dell right now, considering the alternatives; maybe at a later date...
Hewlett-Packard (NYSE: HPQ), an arch competitor of Dell (NASDAQ: DELL), reported Q2 earnings on Tuesday. Looking through the release, I see quite a few things to like about the H-P story.
Revenues increased 11% to $28.3 billion. This increase was aided by international sales and the weak dollar. On an adjusted basis, earnings per share increased 24% to 87 cents. Furthermore, the adjusted operating margin increased 100 basis points to 10%. Cash generated from operations was $4.8 billion during the quarter, which the release categorized as a record statistic. Cash flow is one of my favorite metrics, and I love it when it is doing well. In fact, according to the transcript of the conference call at Seeking Alpha, the six-month operational cash-flow figure had increased 92% over the comparable time frame one year ago, and free cash flow had more than doubled for the same period.
Honestly, it seems like H-P is managing itself very skillfully, leveraging its various brands in the PC sector to great effect. Guidance calls for adjusted earnings of $3.54 and $3.58. This means that, in my opinion, H-P's stock isn't too expensive. It's also trading away from the 52-week high, which is another positive. Of course, the big story surrounding the company at the moment is its announced acquisition of Electronic Data Systems (NYSE: EDS). As Tom Taulli has observed, the EDS buy is logical. Combining H-P's expertise at providing technologies to the PC world with the services portfolio provided by EDS will most likely make HP an even bigger force, and it could give a behemoth like IBM (NYSE: IBM) new challenges.
Hewlett-Packard Corp. (NYSE: HPQ) will purchase about 24 data centers in Europe from BT Group (formerly British Telecom) for $2.9 billion, the Sunday Times in London reported Sunday, with an official announcement likely to come within weeks. However, BT Group will likely sign a 10-year contract to continue using the data centers with HP; BT Group just won't own them any longer.
But this isn't just a deal for HP to own more data centers as it beefs up its service provider portfolio in addition to its manufacturing prowess. BT Group is also going to manage the remainder of HP's voice and data networks worldwide. The London-based telecom company already handles HP's European voice and data networks, so this transaction is like trading a global service contract for a bunch of server farms. Or at least that's what is sounds like.
HP will continue to ramp up its portfolio of service offerings to better compete with IBM Corp. (NYSE: IBM), a company that left the hardware business to focus on service contracts with corporate customers and that has done well at it under former CEO Lou Gerstner and current CEO Sam Palmisano. HP is already a larger company by revenues than IBM, but it doesn't have the service provider clout yet -- it's still first and foremost a manufacturing company.
By some measures, China-based search engine Baidu (NASDAQ: BIDU) has 60% of the search engine market in that country, which now has more internet users than the U.S. Google (NASDAQ: GOOG) is a distant second.
According to Reuters, "Lee Kai-Fu, Google's president for Greater China, said in an interview that the Silicon Valley company intends to add 200 staffers in 2008 to its existing 600 employees and to keep up that level of hiring for the next three to five years."
All of the effort may not help. The Chinese may prefer to use the services of a company that was founded in their own country and where the search technology was originally based on their language. China has watched U.S. tech efforts from Microsoft (NASDAQ: MSFT) to Hewlett-Packard (NASDAQ: HPQ) come into the country and dominate market share. The capital from those efforts makes it way back to the U.S.
Baidu is one of the few Chinese tech companies that has a huge lead on its Western competition. Many people there prefer it that way.
Douglas A. McIntyre is an editor at 247wallst.com.
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.
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