What does Surface mean for Dell and HP?

Both companies are struggling and will soon have Microsoft as a major competitor.

By TheStreet Staff Jun 20, 2012 10:33AM

By Robert Weinstein

 

Monday's announcement by Microsoft (MSFT) must have left Dell (DELL) and Hewlett-Packard (HPQ) scratching their heads wondering "now what?" From Dell's and HP's point of view the best part of the presentation is Microsoft knows more about what colors are available for the new Surface than pricing or the timing of release. (Microsoft owns and publishes TechBiz, an MSN Money site.)

 

It appears Microsoft has a potential winner in this product, but who can honestly know when the company hasn't disclosed pricing or availability? If the Surface announcement is meant to be more than a heads-up for the competition, Microsoft better price it right, and start moving product well before the holiday season around the corner.

 

HP and Dell can cross their fingers Microsoft has more trouble gaining consumers interested in Surface than they had filling up the venue location for the announcement. (Read my article Should Apple Fear Microsoft's Coming Tablet Assault?)

 

Both Dell and HP are in the Wall Street dog house. Dell's stock is down 24% from a year ago and HP has fallen a whopping 40% from this time last year. As I write this article, HP is within 60 cents of the 52-week low. While Microsoft trades 4% higher and the S&P 500 ETF SPY (SPY) trades up 1%, Dell and HP are flat to lower.

 

Obviously, there are more ingredients that go into the pricing soup for the day; however, both companies are struggling and both will soon list one of their biggest vendors as a major competitor. Any given day's price movement doesn't mean a whole lot in the longer scheme of things anyway.

 

What matters are the gaps down in price both companies have recently experienced and how long it will take to recover. As I wrote in a recent Dell-focused article, it may take two strong quarters to fully bring back Dell's stock price. Dell received a boost after announcing a dividend, but a dividend is far short of earnings, and that is what Dell needs. Dell should have announced the dividend a few years ago. Better late than never I guess.

 

Along with its first dividend, Dell also announced a cost-reduction program. Dell is hoping they can cut costs by $2 billion. It won't be an easy feat and based on the market reaction, Michael and the crew in Texas have their work cut out. (Read my article Microsoft's Impressive Product Still Needs Perfect Execution.)

 

HP also pays a decent yielding dividend of 53 cents or 2.4%. HP's dividend payout ratio is under 20% so the dividend is probably safe for now. Both companies have a lot more than tablets and or laptops to sustain earnings.

 

Enterprise computing with cloud technologies and server solutions provide a growing space to compete in. As HP demonstrated not long ago, if tablets are not going to generate income, they don't need to produce them.


Can Google's (GOOG) Android turn into the solution both Dell and HP are looking for? With an estimated cost of somewhere around $50 per copy of Windows RT, maybe it's time to look at Android as an alternative to Windows?

 

HP also pays a decent yielding dividend of 53 cents or 2.4%. HP's dividend payout ratio is under 20% so the dividend is probably safe for now. Both companies have a lot more than tablets and or laptops to sustain earnings.

 

Enterprise computing with cloud technologies and server solutions provide a growing space to compete in. As HP demonstrated not long ago, if tablets are not going to generate income, they don't need to produce them. While Windows RT comes loaded with office (a particularly significant deal for business users), the retail price for a tablet or netbook running Android sitting on a shelf of Wal-Mart (WMT) will have a price tag about $60 to $65 less than essentially the same thing with Windows RT.

 

The Android platform also has the critical mass of support from other users and app developers. Android currently has a larger ecosphere than Windows, so even removing the already clear price advantage; some consumers may select Android over Windows.

 

Along with sending a clear message to Seattle, HP and Dell may find a phone call to Google is what they are searching for.

 

I am longer term bullish with MSFT, but currently short based on a day trade technical signal.

 

More from TheStreet.com

 

1Comment
Jul 2, 2012 4:41PM
avatar

Who proofs the article before its posted?  Wake up, you repeated text. See below.

 

HP also pays a decent yielding dividend of 53 cents or 2.4%. HP's dividend payout ratio is under 20% so the dividend is probably safe for now. Both companies have a lot more than tablets and or laptops to sustain earnings.

 

Enterprise computing with cloud technologies and server solutions provide a growing space to compete in. As HP demonstrated not long ago, if tablets are not going to generate income, they don't need to produce them.

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