Dell, HP profits rise, wave off slowdown fears

SAN FRANCISCO: Dell Inc and Hewlett-Packard Co dismissed worries about weakening tech demand, reporting broad-based strength from corporate customers and only hints of weakness from consumers.

Both faced questions on Thursday, Aug 19 about the strength of the recovery in spending on TECHNOLOGY [], after Cisco Systems Inc CEO John Chambers' warned about "unusual uncertainty" in the global economy.

Analysts said fears persisted about the strength of any recovery in consumer spending, as growth moderates in Europe and China as well as in the United States.

But executives from the two largest U.S. personal computer makers waved off such fears.

"We saw better-than-normal quarterly seasonality, as well as good balanced performance across all of our three regions," said Cathie Lesjak, HP's interim chief executive, on a conference call with the media.

Dell beat Wall Street's profit and revenue estimates, and said it expected a continued pick-up in demand for PCs from corporate customers for the next several quarters. But the company's gross profit margin lagged Wall Street expectations and its shares fell in after-hours trading.

HP -- posting its first quarterly report since the ouster of CEO Mark Hurd -- said earnings rose 6 percent as expected, helped by strength in servers and personal computers.

Storage and server revenue rose 19 percent, while PC revenue rose 17 percent. Lesjak did not point to any particular weakness in the market, other than in consumer notebooks.

"People were spooked after Cisco cited uncertainty and now people are more concerned about how the rest of the year will play out," said Morningstar analyst Michael Holt.

REFRESH CONTINUES

On the corporate side, Dell Chief Financial Officer Brian Gladden said the refresh cycle was proceeding as forecast, adding that he expects component costs to start to come down in the fiscal third and fourth quarters.

Dell said it expected demand for PCs among corporate customers to continue for the "next several" quarters. It said it expects "seasonal improvements" in the third quarter, thanks to sales to the federal government and business customers, with a resulting "pick-up in the low single digits."

"This is a pretty stretched-out cycle and we think it'll continue for several quarters," he said in an interview with Reuters. For the fiscal second quarter, "commercial growth was really the key for us, servers, networking systems, storage, services. That was up about 43 percent."

Apart from questions about the strength of the global tech recovery, HP executives are also likely to field queries on its CEO search, officially launched Wednesday and encompassing both internal and external candidates.

HP, the world's largest technology company by revenue, forced out Hurd on Aug. 6 for expense account irregularities related to a female contractor. Hurd, CEO since 2005, had been credited with reviving the company's fortunes.

HP shares have fallen about 12 percent since Hurd left. The stock closed at $40.76 on the New York Stock Exchange, and dropped to $40.50 after hours.

Shares of Round Rock, Texas-based Dell, which are down roughly 31 percent since April, fell 2.6 percent to $11.73 in extended trading. - Reuters

Stocks see broad gains; Industrials, tech climb

Industrial, technology stocks lift market on signs of increasing demand; euro extends climb

NEW YORK (AP) -- Industrial and technology stocks pulled the market sharply higher Tuesday after Boeing Co. said it was boosting production and an industry group forecast that demand for computers would increase.

The Dow Jones industrial average rose about 150 points in afternoon trading. The Dow and other major stock indexes rose more than 1.5 percent.

The advance in U.S. stocks was broad, but industrials made some of the biggest moves. Boeing Co. rose 3.3 percent after increasing production of the 737 jet. Boeing said customers are adding to existing orders and placing new ones. Illinois Tool rose about 1.4 percent after it raised the lower end of its fiscal second-quarter earnings target.

Meanwhile, the New York Federal Reserve regional manufacturing expanded has expanded for an 11th straight month in June.

"We're still seeing factories and manufacturing help provide a little stimulus for the economy here," said Michael Church, president at Addison Capital Group in Philadelphia.

Technology stocks got a boost after research firm International Data Corporation said it expects the personal computer market will grow 20 percent this year. Chipmaker Intel Corp. climbed 2.4 percent.

A gain in the euro and a drop in the dollar signaled that traders around the world are less worried that debt problems in Europe will disrupt a global recovery. The euro rose to $1.2319 after climbing Monday.

The falling dollar boosted prices of commodities including oil. Commodities become more affordable for overseas buyers when the dollar falls. The rise in oil lifted energy stocks. Oil services company Halliburton Inc. rose 5.4 percent.

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Two Penang HDD parts makers re-investing this year

Monday June 14, 2010 By DAVID TAN davidtan@thestar.com.my

GEORGE TOWN: Two Penang-based hard-disk drive (HDD) component makers, Eng Teknologi Holdings Bhd and Dufu Technology Corp Bhd, are re-investing this year.

Their move comes as Seagate and Western Digital, the two major producers of HDD products, are allocating US$750mil each for capital expenditure (capex) this year. The amount represents an increase of 15.4% and 36.4% respectively for the two companies.

According to a recent broker report, both Seagate and Western Digital are increasing capex to support demand, “as inventory levels at their original equipment and distribution customers remained at nearly all-time lows across all geographic regions and product offerings.”

The global demand for HDD products is also expected to hit over 671million units this year compared with over 557 million in 2009.

Eng Teknologi is allocating about RM100mil to expand its operations in Malaysia, Thailand, and China this year and next.
Dufu Technology Corp Bhd, on the other hand, is pumping RM12mil to increase production of HDD components, such as clamps and spacers, at its plant in Bayan Lepas Industrial Estate.

Eng Teknologi group chief executive officer Datuk Y.K. Teh told StarBiz that the expansion would increase the group’s production capacity of HDD components, comprising base-plates, separators and actuators, to 154.7 million pieces this year compared with 96.7 million in 2009.

“In 2011, the group’s production of HDD components would go up to 201.4 million pieces.

“The world’s shipment of HDD is likely to surpass 600 million drives for 2010, compared with about 557 million in 2009. In 2011, shipments are likely to hit 742.7 million,” he said.

Teh said over 50% of the group’s HDD components were supplied to Western Digital, which recently announced it would invest about US$1.2bil in Penang.

He said the group had planned for its industrial product business to contribute about 30% to revenue by 2014, as the segment was less volatile.

For the first quarter ended March 2010, the group posted net profit of RM18.3mil on a revenue of RM153mil, compared with RM71mil and RM100mil respectively a year earlier.

Dufu chief executive officer P. Y. Yong told StarBiz that the expansion exercise would enable the group to increase annual production by 10% over last year’s 150 million pieces of clamps and spacers.

For its fiscal first quarter ended March 2010, sales of HDD components brought in RM26mil in revenue and accounted for 80% of total revenue of RM33mil. In the same period last year, it made RM20mil from the sale of HDD components.

“The market is coming mainly from China, Thailand, and Singapore, where about 80% of the group’s sales are generated,” he said.

Yong said the market for HDD products had reached a peak somewhat due to the crisis in Europe.

“We do not expect production of HDD products in the third quarter 2010 to exceed very much that of last year’s third quarter,” he said.

The group supplies HDD components to Western Digital, Seagate and Hitachi.

DUFU CHART: TIME TO ACCUMUALTE AS TECHNICAL READING ARE GROSSLY OVERSOLD

Recommendation: ACCUMULATE%D�urrent Price: RM0.55%D�-month Technical Target: RM0.73%

Catalysts: Playing catch-up against the bigger HDD players and riding on the bullish HDD outlook

Dufu, a laggard in recent rally
The Penang-based company has withstood many cycles profitably in its 22-year history, a testament to its resilience and cost%D�ontrol efforts. Its future growth will centre on newly acquired Futron Technology since 1Q09, whose plant in China will be able to%D�ater for larger orders and at lower costs.%D�espite its strong earnings growth and low valuations, DUFU’s shares have been a laggard during the recent rally, possibly due to its smaller market capitalization and free float, limited range of products, lower dividend yield and weaker EPS CAGR from FY09-%D�Y11 against its peers. As a results, its share price only increased 0.9% (industry: 7.5%), 15.8% (industry: 30%) and 3.8% on a 1-month, 2-month and 3-month basis, respectively.

Poised for a breakout after completing its triangle consolidation
Since hitting a 52-week high of RM0.73 on 12 Jan 2010, DUFU’s share price has been trapped in a triangle consolidation. As trend%D�nd momentum indicators are gradually heading upwards, we are optimistic that DUFU’s share prices will nudge higher as current%D�onsolidation is likely at its tail end. We are eyeing the RM0.60 level (50% FR from top RM0.73 and low of RM0.46) as theimmediate upside target, followed by the RM0.63 (61.8% FR), RM0.67 (76.4% FR) and 52-week high of RM0.73.

On the downside immediate support is at the RM0.54 level (50-day SMA), followed by RM0.52 (23.6%FR) level and RM0.505 (100-%D�ay SMA). Our cut-loss point is pegged at the RM0.50 psychological support level

Recommendation: ACCUMULATE%D�t RM0.55, DUFU is trading at 4.7x FY11 P/E (industry 7.1x) and 0.6x FY11 P/B (industry 2.1x), respectively. We expect the huge%D�7% P/E and 71% P/B discounts to the industry to narrow as DUFU gradually plays catch-up with its peers. Our 6-month technical target price for DUFU is RM0.73, implying a 0.8x FY11 P/B.

Share price is poised for a breakout above the downtrend line once the triangle consolidation completed.

dufutechnology.com/