Leadership fears shade HP, Dell earnings

By Alexei Oreskovic

SAN FRANCISCO (BestGrowthStock) – Hewlett-Packard Co (HPQ.N: ), which dazzled Wall Street with rock-steady performance during Mark Hurd’s five-year reign, faces the difficult task this week of reassuring investors it can sustain that showing as competitors search for openings.

Rival technology companies are looking for inroads into HP’s businesses from printing and PCs to corporate services and consumer electronics, while investors question HP’s resolve in maintaining the profit-boosting cost cuts that were a hallmark of the Hurd era.

HP is scheduled to hold its quarterly earnings conference call with analysts on Thursday. But since it announced its preliminary numbers earlier this month, the focus will be on HP’s strategy and its ability to keep up the momentum across its diverse businesses.

HP’s shares are down roughly 11 percent since Hurd announced his abrupt departure Aug 6 amid a sexual harassment scandal.

“It does create a bit of a mystery going forward on the stock,” said Daniel Morgan, a portfolio manager at Synovus Securities, which owns HP shares.

“You can say you’ve got a great program, you can say you’ve got a plan, but he’s not going to be there to do it,” said Morgan, referring to HP’s prospects without Hurd at the helm.

Leadership questions are also front and center at Dell Inc (DELL.O: ), the world’s No. 3 PC maker, which reports earnings the same day. A filing on Tuesday showed roughly a quarter of votes cast at the Dell’s shareholder meeting withheld support for Michael Dell’s re-election to the board.

Dell’s stock is down more than 50 percent since August 2008 and the company recently paid $100 million to settle a government probe into some of its accounting practices.

All this comes at an inopportune time for both tech giants. Competition is heating up with Oracle Corp (ORCL.O: ) and Cisco Systems Inc (CSCO.O: ) expanding into new corporate technology markets, while smartphone and tablet technology from Apple Inc (Read more about Apple stock future.)

(AAPL.O: ) and Google Inc (Read more about Google Stock Analysis) (GOOG.O: ) threatens to erode PC sales.

HP’s leadership vacuum means the company won’t be able to provide customers with the kind of face-to-face attention that a CEO traditionally provides, creating an opportunity for rivals to swoop in.

“In the gap, other CEOs are going to be kissing hands and cozying up to the executives (at HP’s customers), and some of these people might start feeling comfortable with someone else,” said Rob Enderle, President of the Enderle Group, which provides consulting services to tech companies including HP.

Enderle said the entrenched relationships that HP has with its largest customers means the company likely has six months to find a new CEO before any significant business is at risk.

SPENDING PAUSE?

Hurd resigned amid an internal investigation into sexual harassment that concluded he falsified expense reports and violated HP’s standards of business conduct, though the board found no violation of HP’s sexual harassment policy.

The sexual harassment claim was made by marketing contractor Jodie Fisher, who alleged she lost work from HP because she did not have sex with Hurd, a source with knowledge of the matter told Reuters. HP has declined comment on that issue.

The company appointed finance chief Cathie Lesjak interim CEO while it searches for a full-time helmsman.

“Until they name a new CEO, the stock is likely somewhat rangebound,” said Kaufman Brothers analyst Shaw Wu. “There is always that risk that perhaps they don’t hire the right person that people think is appropriate for HP.”

Adding to investor worries for HP and Dell are signs of weakening business conditions. Last week, Cisco CEO John Chambers spooked investors by warning of “unusual uncertainty” in the economy. And research firm Gartner cut its forecast for worldwide corporate technology spending last week.

While HP exceeded its initial revenue and profit goals during the second quarter, according to its preliminary results, investors will look for any signs of softness in its business lines, from PCs to storage and networking equipment.

Dell will provide an update on corporate spending on desktop and notebook PCs. It is expected to report revenue of $15.2 billion with adjusted earnings per share of 30 cents, according to Thomson Reuters I/B/E/S.

Companies like HP have benefited from a rebound in spending on equipment and services for data centers in the past five quarters, said Pacific Crest Securities’ Brent Bracelin.

“The debate now is, are we going to see a pause or not?” Bracelin said.

(Reporting by Alexei Oreskovic; Editing by Derek Caney)

Leadership fears shade HP, Dell earnings