PC Makers Have a Peak to Scale

Life has been good lately for

HP

HPQ -8.94%

and

Dell Technologies.

Many investors seem to think the PC business is as good as it gets.

Booming demand for personal computers has made HP and

Dell

DELL -1.06%

two of the strongest large-cap tech stocks so far this year. Before their latest quarterly reports late Thursday, HP was up 31% for the year, while Dell had jumped 36%. That far exceeds the performance of both

Microsoft

MSFT 0.15%

and

Apple

AAPL -0.53%

—the market’s two most valued companies, who also have a fair amount of exposure to the PC market.

That set a high bar for the two companies’ results for the fiscal quarter ended in April. But both came through. HP’s revenue surged 27% year-over-year to about $15.9 billion, notching the company’s best growth since splitting with its

Hewlett Packard Enterprise

sibling in 2015. Dell’s revenue jumped 12% year-over-year to about $24.5 billion. Both well exceeded Wall Street’s estimates. PC sales account for a little over half of Dell’s total revenue and a little over 60% of HP’s.

Still, both stocks fell Friday following their results. HP shares fell 9% as analysts noted that its per-share earnings projection for the fiscal year ending in October reflects pressure coming in the second half of the year. The company racked that up to “increased costs in commodities and logistics.” It also said the continuing chip shortage will hurt its ability to meet demand in both PCs and printers. Dell shares slipped by 1.1%, as the company also cited supply constraints as a factor for July quarter revenue to be “slightly below our normal sequential pattern over the past few years.”

PCs have been a mature business for years; the sector saw unit sales shrink globally every year from 2012-2018, according to both Gartner and IDC, which track PC sales. Microsoft’s end of support for Windows 7 sparked a small upgrade cycle in 2019, but the pandemic really juiced demand, as workers and students sent home rushed to equip themselves. Unit sales of PC and Chromebooks jumped 13% to 302.6 million in 2020, and surged by 55% year-over-year in the first quarter, according to IDC’s data.

HP’s revenue surged 27% year-over-year to about $15.9 billion in the fiscal quarter ended in April.



Photo:

David Paul Morris/Bloomberg News

Analysts are mixed on how much steam remains for the sector. “We worry that PC strength in 2020 and 2021 represents a pull forward / one time surge in PC demand,” wrote Toni Sacconaghi of Bernstein. Jim Suva of Citi on the other hand thinks investors are “overly negative” on the prospects for the sector, “as we believe society will permanently increase the PC installed base with the need for flexible work and education.” David Vogt of UBS agrees, writing Friday that “our analysis of consumer purchase intent and channel checks supports a prolonged demand backdrop offsetting concerns of ‘peak earnings.’”

Wall Street expects growth for both companies to slow considerably in the current fiscal quarter ending in July. But neither HP nor Dell are terribly expensive bets. Both stocks were trading at roughly one-third the Nasdaq’s average multiple of forward earnings even before Friday’s declines. That isn’t such a stretch if the PC boom proves to have some additional legs.

Write to Dan Gallagher at dan.gallagher@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Latest Posts