Key Takeaways From Dell, HP Recent Earnings Reports

By Michael Comeau Dell (DELL) dropped its first-quarter earnings report after the close yesterday, so let's jump right in and take a look at the headline numbers: 1. Revenue came in at $15.02 billion, slightly below analysts' expectations of $15.4 billion. Dell's top line was hit by the same slowdown in consumer-PC sales that put a hurting on Hewlett-Packard (HPQ), which was down over 7% on Tuesday. 2. Dell earned 49 cents a share in the quarter, handily beating the consensus forecast of 43 cents a share. Lower component costs and a more favorable product mix (as in less sales of low-margin consumer PCs) drove gross margins up well above Wall Street's expectations.

(To read Kevin Depew's piece on the mediocrity of the wisdom of crowds, click here.)

3. Sales to large corporations, and medium-sized and small business were the bright spots among Dell's business segments. 4. Dell raised its full-year forecast for operating-income growth to 12-18% from a prior range of 6-12%, a substantial jump. Dell's stock popped over 6% after the close Tuesday, a move I attribute to the raised guidance and earnings beat, which looked awfully good compared to the nonsense that key rival HP delivered to shareholders the day before. Now, I didn't like Dell yesterday and I still don't like the stock today, but the company is on a bit of a winning streak. Q1's results mark four earnings beats in a row -- not bad. HP has failed to beat analysts' expectations in six of its last seven quarterly-earnings reports.

(To see Lloyd Khaner's article about why investors are fearful, click here.)

At the end of the day, Dell may be doing better than HP, but both remain far behind the Apple (AAPL) juggernaut. Call me crazy, but I just can't get excited about companies that have to make regular acquisitions just to keep revenues growing as fast as GDP. So really, what's the point of messing around with companies like HP and Dell? Nonetheless, there are two very important takeaways from Dell and HP's numbers: 1. I would be very, very careful about playing with companies in the PC supply chain -- that includes everyone from NVIDIA (NVDA) to Micron (MU) to Western Digital (WDC) to one of the all-time great momentum stocks, Dolby Laboratories (DLB). I would also avoid Best Buy (BBY) like the plague due to its heavy reliance upon US consumer spending.

(To view Serge Berger's thoughts on about financials going higher, click here.)

Now, Intel (INTC) CEO Paul Ottelini is out denying that there's a PC slowdown, but the crosscurrents are looking pretty strong right now. That's enough to keep me out of this game. 2. We're still seeing a mega-shift in consumer spending within the technology world. The dollars are clearly moving to smartphones (and the iPad) and away from old-school PCs. Forget all the arguments and talking points regarding whether smartphones and tablets are actually replacing PCs. The only thing you need to know is that one pie is getting bigger, and the other is getting smaller.

To read the rest, head over to Minyanville.