H-P To Set Next 60-Day Tone For PC's & Tech (HPQ, DELL, LXK, INTC, AMD, MSFT)

As far as investors are concerned, today’s Hewlett-Packard (NYSE:HPQ) announcement is perhaps the single largest investment event for investors who have been trying to figure out if they can really hide their investment bucks in PC-related companies or not for the rest of the year.

First Call has estimates at $0.82 EPS on $27.39 Billion in revenues, and this will mark H-P’s fiscal 2007 year-end.  Estimates for next quarter are $0.77 EPS and $26.99 Billion in revenues, while expectations for fiscal 2008 are $3.26 EPS on $109.46 Billion in revenues.

Options may be a hard judge with the 2% drop today, but options traders appear to be braced for a move of up to $2.20 to $2.45 in either direction.  The average analyst buy target is still north of $55.00.  With shares under $50.00, this one is under the 50-day moving average of $50.80 and still well above the 200-day moving average of $45.77.  H-P’s chart has been at a crossroads since it dropped out of that 18-month uptrend band over the last month, so the reaction to today’s earnings has a real shot at setting the trend for more than just a few days.

The U.S. is seeing a weak consumer.  But if you use the Internet regularly (that’s you if you are reading this), you will know that if you haven’t upgraded your PC to the new dual core processors and the 2MB DRAM and graphic chipsets that Web 2.0 eats up your PC like no tomorrow.  So it is possible that the new-dual core PC’s (or at least the fastest single cores) will be a necessity rather than an option.  The company has also turned itself into an enterprise IT consultant and software provider via recent acquisitions, so there’s going to be a little bit for everyone today.

H-P is the largest PC-maker now, so it will likely have ripples either way.  In PC’s, Dell (NASDAQ:DELL) has turned itself back into a competitor again after losing the pole position.  Goldman Sachs recently made a key change on its Conviction Buy List: removed H-P and added Dell.Lexmark (NYSE:LXK) competes in printer sales.  If any weakness came into the sector over the last few weeks you cannot have a weakening PC market with a strengthening processor market, so watch Intel (NASDAQ:INTC) and AMD (NYSE:AMD).  Microsoft (NASDAQ:MSFT) traded to new multi-year highs after earnings in October, and it is still by far the only benchmark for O/S sales (Vista AND XP) in PC’s.  The food chain can go on and on from DRAM makers, contract manufactures, circuit boards, graphic chipsets, flat screen makers, and hard drives…. so in tech-land, H-P may be one of the single largest events for tech traders over the next two weeks going into the holiday season.

Jon C. Ogg
November 19, 2007

Jon Ogg can be reached at [email protected] and he produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.