Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) are two closely compared competitors, operating in many of the same industries. However, in terms of operational approach and company direction, the two are about as different as they come. Now, with both companies reporting earnings in the last week, which is a better buy?
Similar Yet Different
Like I said, although compared, Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL) are very different. For one, HP is much larger, and has four massive segments in which its revenue is distributed somewhat fairly. Dell relies mostly on its PC segment, and also its enterprise hardware business, which made up 86% of the company's Q2 revenue.
HP has been one of the Dow's top performers of 2013. Meanwhile, Dell Inc. (NASDAQ:DELL)'s stock gains have stalled following a very public buyout bidding war from the likes of Michael Dell, Carl Icahn, and the investment firm Silver Lake. And while it does appear that Dell will be purchased at some point in the future, we can not assume the buyout will occur, as deals often fail to materialize and these events can take a turn for the worse rather quickly.
A Fundamental Look
I am looking at the quarters from both Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL), comparing them both, and then determining which company has the most upside based on valuation and fundamentals alone. Therefore, let's look at some key metrics for each company, and how these fundamentals compare over the previous year.
|Dell (earnings)||HP (earnings)|
|Total Revenue||$14.5 billion / flat y/y||$27.22 billion / (8% y/y)|
|PCs||$9.1 billion / (5% y/y)||$7.7 billion / (11% y/y)|
|Enterprise Hardware||$3.3 billion / +8% y/y||$6.7 billion / (9% y/y)|
|Services||$2.1 billion / +2% y/y||$5.8 billion / (9% y/y)|
|Printing||N/A||$5.8 billion / (4% y/y)|
|Software||$310 million / +228%||N/A|
|R&D||$320 million / +23% y/y||$797 million / (7% y/y)|
|SG&A||$2.1 billion / +6% y/y||$3.27 billion / (3% y/y)|
In case you're having trouble in reading or following the chart above, allow me to simplify it. First, Hewlett-Packard Company (NYSE:HPQ) posted a year-over-year loss in every single major revenue category. HP also spent less on SG&A and R&D compared to the previous year. Seeing as how most technology companies spend money in order to innovate, HP's lack of investments appear to be a sign of playing it safe.
Dell is growing in three categories, and its decline in PCs is less than half of Hewlett-Packard Company (NYSE:HPQ)'s year-over-year decline. Also, Dell Inc. (NASDAQ:DELL) has greatly boosted its spending, especially in R&D. Thus, Dell Inc. (NASDAQ:DELL) is making investments and is spending money in order to make money in the future.
A Difference In Operational Approach
Combined, you can really see the difference in operational approach between these two companies, when stacked side-by-side. Hewlett-Packard Company (NYSE:HPQ)'s stock has been rewarded in the last nine months as the company cuts costs to focus on operating efficiency. In particular, cash flow is a big value driver for HP, and in this quarter, operating cash flow of $2.7 billion represented a year-over-year loss of just 6%, which is less than revenue declines.