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Will HP Let the Good Tech Times Continue to Roll?

When Hewlett-Packard reports its earnings after the bell tonight, it should go a long way toward keeping the optimism alive in the tech sector. We've gotten good news from Cisco , Apple, Google , Intel , and with market research suggesting a turnaround in PC sales, HP should shift broader tech into a higher gear.

HP
ehecatzin
HP

Analysts are looking for about 90 cents on over $27 billion. That's the easy part in all this. Brent Bracelin at Pacific Crest thinks HP is poised for a beat and raise quarter, and that's what investors need to see.

CEO Mark Hurd has already demonstrated a laser focus to the bottom line, slashing tens of thousands of jobs, cutting back travel and other expenses, and it's all led to a healthy increases on the bottom line.

But Hurd will be the first to tell you, there's only so much cutting you can do; at some point, that topline needs to show improvement as well and that's why, like so many tech companies before it this earnings season, analysts might be focused more on sales growth than profits.

Remember that it was back in February that HP cut its full year outlook after a rare miss on earnings. Reversing that commentary will also be important tonight. Look for the company to suggest indications of a market turnaround, but not necessarily that the turnaround is finally upon us, or that the worst is finally behind us. Deviating from that message, either good or bad, will drive these shares when the numbers come out.

"We need confirmation," Bracelin tells me. "Their business has been in a free-fall the last two quarters, particularly on the hardware side. A 31 percent sequential drop in HP's hardware business over the last two quarters. We're modeling a rebound, and we need confirmation of that, that the worst is behind them."

(Bracelin, incidentally, is looking for 91 cents on $27.67 billion for the third quarter. For the fourth quarter, $1.08 on $29.86 billion versus the street at $1.07 and $29.81 billion.)

HP, like IBM, and Microsoft and so many others, is a sum of its parts, so each unit's revenue will be watched closely. Pacific Crest anticipates the following: Enterprise Storage and Servers, $3.44 billion; Services $8.56 billion; Software $900 million; and Personal Systems Group, $8.6 billion; and Imaging and Printing $5.73 billion.

Beyond the actual numbers, analysts will want to hear from Hurd about macro IT spending around the globe. Is there any measurable improvements among enterprise customers? Rival Dell has already indicated weakness, but there's a thought on the Street that Dell's problems might be its own, or driven by HP's dominance.

(Dell reports next week, by the way.) Affirming that idea would be very good for HP and not so good for Dell. IDC has already indicated that HP saw PC shipments grow about 3 percent during Q1 of this year, with global market share now at 20.5 percent.

Further, on the enterprise side of things, when might HP see the climate truly change? HP is the largest PC maker, and the Number 2 services and server company behind IBM. The company is facing steeper competition from the likes of IBM and Cisco, along with the impending marriage of Oracle and Sun Microsystems.

Pacific Crest's Bracelin says an IT recovery could mean a fair value of HP shares in the $46 to $49 range. HP seems like a solid performer but it will all come down to guidance. It seems, as of right now, that HP is sitting pretty and even hints of optimism could mean healthy upside trading in these shares tonight.

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