Wednesday, November 25, 2020

PC Makers Surpass Estimates Driven by Remote Work

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News shaping
the markets today

     

What’s happening: HP and Dell Technologies reported stronger-than-expected earnings for the latest quarter after the closing bell on Tuesday.

What happened: The covid-19 pandemic continued to fuel demand for personal computers amid digital learning and work-from-home trends.

While HP’s shares surged in extended trading on Tuesday, investors remained sceptical about Dell’s performance and sent its stock slightly lower despite the upbeat profits for the October quarter.

How were the results: HP reported a marginal decline in overall revenues for the fourth quarter, while Dell’s sales grew.

  • HP’s revenue fell around 1% to $15.3 billion, but still came in higher than the consensus view of $14.7 billion.
  • Adjusted profit was reported at 62 cents per share, beating the market expectation of 52 cents per share.
  • Dell’s sales grew 2.8% to $23.5 billion, exceeding the consensus estimate of $21.85 billion.
  • Earnings also surpassed the market view, coming in at $2.03 per share.

Why it matters: Both the PC makers took initiatives to improve their business amid the pandemic. While Dell tried to boost sales by allowing corporate customers make payments in instalments. Meanwhile, HP chose to restructure its business to reduce overall expenses.

HP shipped a record 19 million personal computers, with higher sales for home printers too. The company’s biggest business unit, Personal Systems, delivered flat revenues of $10.4 billion for the quarter. Within that segment, notebook sales climbed 18% to $7.41 billion as people continued to upgrade their computers amid the work- and learn-from-home environment. However, the overall unit was pulled down by a decline in sales of desktops and workstations.

With most offices still closed and some operating with lower employees, the company witnessed a decline in corporate printer sales. However, demand from people working from home remained elevated and HP shipped a record 12 million printers last quarter, the highest since the company was split from Hewlett Packard Enterprise.

Dell said sales from consumer PCs rose 14% to $3.5 billion during the quarter. Although the company’s PC sales to business and government clients edged higher by 5.4% to $8.78 billion, server and networking sales declined for the seventh consecutive quarter, falling 1.8% to $4.16 billion.

Dell projected revenue growth of 3% to 4% for the current quarter. Meanwhile HP announced plans to lift its quarterly dividend by 10% and issued upbeat guidance for the current quarter, with adjusted profit projected between 64 cents and 70 cents per share, versus expectations of 54 cents a share.

How shares responded: HP’s shares gained 5.5% to $22.95 in after-hours trading on Tuesday, while Dell’s stock slipped 0.8% at $69.81. HP’s shares have jumped more than 16% over the past three months, with Dell adding 14%.

What to watch: With covid-19 cases continuing to surge around the world, remote work trends are expected to drive more growth for personal computers in the near term. Investors will monitor how the companies meet the rising demand of customers, especially for notebooks, by managing the supply constraint in components.

The Markets Today

     

US stocks will be in focus today ahead of several economic reports scheduled for release during the day.

Context: Wall Street stocks closed higher on Tuesday, with the Dow Jones index surging above the 30,000 level for the first time in history, driven by encouraging covid-19 vaccine news and the beginning of the US Presidential transition.

Details: The Dow’s surge to record levels was driven by investors buying more value stocks, which were impacted significantly due to the covid-19 pandemic. These names have been recording sharp gains this month, with positive coronavirus vaccine data from various pharma companies raising hopes of a faster economic rebound.

Markets also cheered the news of President Donald Trump approving the transition of power to President-elect Joe Biden. Reports of Biden looking to appoint Janet Yellen as his Treasury Secretary added to the already strong sentiment in the market.

On the economic data front, the S&P Corelogic Case-Shiller home price index rose 6.6% for September, although the Conference Board’s consumer confidence slipped to 96.10 during November, versus previous month’s reading of 100.90.

The 30-stock Dow Jones index climbed around 455 points to settle at 30,046.24 on Tuesday, with the index trading as high as 30,116.51 earlier in the session. The rally in the index was driven by gains recorded by the shares of Chevron, JPMorgan Chase, and Goldman Sachs. The previous session’s upturn helped the Dow record gains of over 13% for the month, which might result in the strongest monthly rally since 1987.

Meanwhile, the S&P 500 index also notched a record close on Tuesday, rising 1.6% to 3,635.41, while the Nasdaq 100 gained 1.3% to settle at 12,036.79.

What to watch: Investors await a basket of economic reports from the US, including durable goods orders, GDP growth rate, wholesale inventories, initial jobless claims, personal spending, personal income, new home sales, University of Michigan's consumer sentiment and FOMC minutes.

The US economy is expected to grow by an annualized 33.1% in the third quarter, while jobless claims are likely to drop to 730,000 in the latest week, from 742,000 in the prior week.

Markets will continue to keep a close eye on rising covid-19 cases, with total cases surging past 12.5 million in the US. 

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, German DAX 30 and French 40 up by 1.55%, 1.26% and 1.21%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s retail sales and current account, Brazil's current account and foreign direct investment as well as the US MBA mortgage applications, EIA’s crude oil inventories and Baker Hughes crude oil rigs.