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Market analysis

Companies under study posted positive performance in the third quarter of 2016 with revenue increasing 2.4% year over year and 1.5% quarter over quarter. Year over year, net income dropped by 59.4% and fell 32.3% sequentially. Lenovo and Xerox saw a turnaround from net losses in Q3 2015, but Dell Technologies, HP Incand Hewlett Packard Enterprise all posted sharp declines in net income. HP Incincurred benefit plan settlement charges, interest expenses, and taxes amounting to US$1.0 billion. Hewlett Packard Enterprise incurred tax settlements of US$647 million in relation to its separation from HP Inc. Dell Technologies (formed as a result of the merger of Dell Incand EMC Corp) posted net losses on both a year-over-year and quarter-over-quarter basis. In terms of sequential net income performance, IBM and Xerox were the only companies that posted gains.

In industry news, worldwide PC shipments declined 5.7% year over year to 68.9 million units in the third quarter of 2016. This was the eighth consecutive quarter of PC shipment decline, the longest duration of decline in the history of the PC industry. The decline is attributed to consumers in emerging markets primarily using smartphones or phablets for their computing needs rather than PCs which are more widely used by consumers in mature markets.1

The worldwide tablet market also continued its slump as vendors shipped 43 million units in Q3 2016, a year-over-year decline of 14.7%. In contrast, Q3 2016 shipments were up 9.8% sequentially as large vendors prepared early for the holiday quarter.2

In company news, Dell Inccompleted the acquisition of EMC Corp on September 7, 2016. The merger created Dell Technologies Inc, a US$74.0 billion market leader with a portfolio encompassing Dell, Dell EMC, Pivotal, RSA, SecureWorks, Virtustreamand Vmware. Following the merger, EMC Corp’s common shares were delisted from the NYSE and Dell Technologies was listed with the ticker DVMT. Dell Technologies posted Q3 2016 revenue of US$16.2 billion, growing 28% year over year and 25% quarter over quarter. The high revenue growth reflects the impact of the EMC merger and includes 52 days of financial results from EMC and VMware. The company posted a net loss of US$2.1 billion as a result of high operating and interest expenses.

Hewlett Packard Enterprise’s third quarter revenue was US$12.5 billion, down 7% year over year. When adjusted for divestitures and currency, revenue was down 2% year over year. Financial Services, the top performing segment, posted revenue of US$814 million, up 2% year over year. The Enterprise Group, the weakest performing segment, posted revenue of US$6.7 billion, down 3% year over year after adjustments including divestitures and currency impact. Net income was US$302.0 million, down 78% from US$1,385.0 million in Q3 2015. Net income excludes after-tax costs of US$733 million related to tax settlements, restructuring charges, tax indemnification adjustments, separation costs, gains on the divestitures of H3C and MphasiS, amortization of intangible assets, acquisition and other related charges, and an adjustment to loss from equity interests.

1.Gartner, Oct 2016
2.IDC, Oct 2016