CNN/Money One for credit card only hard offer form at $9.95 One for risk-free form at $14.95 w/ $9.95 upsell  
News > Technology
graphic
It's Dell-ovely!
Good news from Dell and IBM paint a healthy picture for hardware. But software is still slumping.
July 16, 2004: 12:20 PM EDT
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Tech investors finally have some reason to celebrate.

Dell (DELL: Research, Estimates), the world's largest maker of personal computers, raised its fiscal second quarter earnings guidance Friday, citing better operating profits and a lower tax rate.

That came on the heels of a solid earnings report from IBM (IBM: Research, Estimates) Thursday. Big Blue posted particularly healthy results in its hardware division, thanks to strong sales of notebook computers, servers and storage. What's more, IBM said it was comfortable with earnings and sales estimates for the rest of the year.

All in all, it was a good week for the hardware sector.

Apple's fiscal third quarter results were spectacular -- and it wasn't just because of the iPod. Apple (AAPL: Research, Estimates) reported that computer sales, which accounted for nearly two-third of the company's total revenues, were up more than 15 percent from a year ago.

Tech research firms Gartner and IDC both released reports Thursday that showed overall PC shipments grew at a healthy pace in the second quarter.

And even though leading chipmaker Intel (INTC: Research, Estimates) was punished following its earnings report -- gross margin concerns were the culprit -- Intel did raise sales guidance for the third quarter.

Taken as a whole, this news may help calm investors, who had been starting to think that tech spending, particularly by corporations, would slow down in the second half of the year.

Don't sweat software slump

Still, you could hardly blame the market for worrying. The software business has hit a rough patch, after all.

Several software companies have warned in the past two weeks that their results would be worse than expected. And IBM, which also has a huge software division, reported that sales in that business were relatively flat compared to a year ago.

Even so, this week's solid results from hardware related business may prove that it's incorrect to assume that sluggish software spending is a bad sign for all of tech. It's possible that businesses are still seeing a need to purchase new equipment but are content with their existing software.

"IBM's results are a perfect example of how those businesses have decoupled," said Michelle Lin Guiterrez, an analyst with Schwab Soundview Capital Markets. "Companies are not spending simultaneously on hardware and software."

It appears that there is still steady, if not blockbuster, demand for personal computers, servers and other hardware and that bodes well for the major hardware players.

"On the PC side, we're seeing a rolling upgrade cycle. People are continuing to upgrade desktops and notebooks," said Bill Fearnley, Jr., an analyst with FTN Midwest Research. "We expect a strong back-to-school season, as well."

Dell is swell

All hardware stocks probably won't benefit equally from these trends. Fearnley said Gateway (GTW: Research, Estimates), the number 3 PC maker in the U.S., still is "a work in progress." The company, which recently merged with low-cost PC maker eMachines, is expected to lose money this year. That would be Gateway's fourth consecutive year without a profit.

Related stories
graphic
Dell ups 2Q forecast
IBM's mixed bag
Dell gains ground in PC market
Apple earnings triple
Intel profit soars, but...

And Apple, despite its strong results, faces some computer concerns of its own. It has had to delay the launch of its new iMac because of a shortage of G5 processors made by IBM. Apple hopes to roll out the latest version of the iMac by September.

"With Apple, the big question is can they get enough G5 chips to cover demand for the quarter and going forward? The market and resellers are waiting for the new iMacs," said Fearnley.

Some analysts were also quick to point out that Dell's guidance increase may not even necessarily be a sign that things are getting better for #2 PC maker Hewlett-Packard (HPQ: Research, Estimates).

One analyst noted that the fact that Dell's tax rate is expected to be lower this quarter could be a sign that the company is expanding market share abroad -- at HP's expense.

YOUR E-MAIL ALERTS
Technology Stocks
Dell
Earnings
IBM

"Dell has stated that a focus for them has been to gain share in Europe vs. HP, particularly in servers," wrote Steven Fortuna, an analyst with Prudential Equity Group in a report Friday. "We believe that Dell is indeed making progress to close the gap and Dell's declining tax rate implies improving operational profitability in the region."

The market begged to differ, however. HP's stock rose more than 1 percent Friday on the heels of the earnings news from IBM and Dell.

Brent Bracelin, an analyst with Pacific Crest Securities, points out that although Dell's guidance boost is encouraging, the company did not change its revenue outlook. As such, he thinks profits will be boosted more by lower component costs, not a surge in sales.

"You can't read too much into Dell's news. The demand outlook hasn't changed," Bracelin said.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking relationships with the companies.  Top of page




  More on TECHNOLOGY
Honda teams up with GM on self-driving cars
The internet industry is suing California over its net neutrality law
Bumble to expand to India with the help of actress Priyanka Chopra
  TODAY'S TOP STORIES
7 things to know before the bell
SoftBank and Toyota want driverless cars to change the world
Aston Martin falls 5% in its London IPO




graphic graphic

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.