Dell and HP threatened by slowing global demand

 

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By Reuters

Posted on 19 Aug 2008 at 12:04

Dell and HP could be hit hard by slower emerging market spending and a strengthening dollar, according to analysts.

Countries like Brazil, Russia, India and China have held up global sales for HP, Dell and many other big technology companies during the US's credit crunch. But any slowdown in these countries, with no sign of a larger economic recovery in the US, could pressure future performance this year.

"They're ... very high-growth economies but they're still subject to volatility," says Jayson Noland, an analyst at Robert W. Baird & Co.

"I think China's just kind of a who-knows. It's so hot, it has to come down eventually," he said. "Even if China goes from 25% to 15% year-over-year growth, it can cause some volatility."

The Shanghai Composite Index is down about 50% this year and Lenovo, based in China, is facing slowing earnings growth as it copes with weaker demand following a devastating earthquake earlier this year.

Even so, Richard Kugele of Needham & Co, was one of a number of analysts who forecast a good August quarter.

"You're going to hear notebooks doing well for both companies," says Kugele. "I think that HP continues to be very upbeat about what it can do with EDS and will go to great lengths on the conference call to convince people of that."

Kugele was referring to HP's $13.2 billion planned acquisition of technology outsourcing company Electronic Data Systems, which it is buying to better compete with IBM.

Recent strengthening of the US dollar is also making many nervous about overseas sales. "If it does continue to strengthen, you could see some of that be a headwind to top-line growth," adds Kugele.