Deutsche Bank Expects Enterprise Strength To Drive Dell (DELL) and HP (HPQ)

Deutsche Bank expects strong enterprise IT spending to drive strong results from Dell DELL and HP HPQ. Deutsche Bank believes that Dell “margins were supported by favorable product mix (healthy corporate demand / softer consumer) with solid results in Server/Storage due to improving enterprise demand and datacenter upgrade activity.” The bank is “modeling +5% Y/Y total unit growth, where Corporate (~75% of units) was offset by weak Consumer demand / iPad cannibalization.” Deutsche Bank models “gross margins of 18.6% and operating margins of 6.3% (vs.17.4% and 5.3% in the year ago quarter).” Deutsche Bank singles out lower commodity/input costs as the primary driver of the increased margins. The report predicts “upside potential for HPQ revenues and modest EPS upside driven by commodity prices / past restructuring actions. We believe improving IT spending conditions translated into robust revenues in corporate PCs, Servers & Software and in-line Services results, which should help offset weakness in printing (soft inkjet) and Consumer PCs.” HP is also expected to “maintain FY11 revenue guidance of ~+5-6% Y/Y, provided at its 4Q10 earnings announcement.” Dell closed at $13.89 and HP closed at $47.43.