a qualifier

Actually, this post is more about how I interpret their results.

There’s always ambiguity in any assessment of how companies are doing, including management’s own statements.  There may be issues that managements are unaware of.  There will likely also be others that, especially in the case of a weaker firm, the top brass will tap dance around when speaking to investors.

It’s possible they may be in denial.  But no one is going to turn his earnings conference call into an advertisement for competitors by revealing that, say, “Lenovo has better products than we do, so they’re taking market share from us wherever we compete.”  That just speeds the customer exodus.

We are , however, in a slow-growth world today, where there’s simply not enough business for all market entrants.  During a boom, the top firms don’t have enough capacity to meet customers’ demands.  So buyers who need a product now have no choice but to purchase from second- or third-tier competitors.   In the current environment, in contrast, the number-ones have capacity.  And customers have more time to study competitive offerings before they choose.

the PC business:  Dell and HP

Both are icons of the PC business in the US.  But neither has kept up with the market. True, Windows Vista certainly didn’t help to enhance the reputation of either.  And both have lost market share to Apple.  Also, the market for Windows machines is being negatively affected at the moment by consumers’ reluctance to buy Windows 7 machines because Windows 8 is just around the corner. But as an ex-Dell user (now writing either on a Mac or an Asus machine), I know Dells weigh a ton, run hot and don’t last very long.  Customer service is awful.  HP isn’t much better.

Asian giants Lenovo, Acer and Asustek don’t yet have the support infrastructure in the US that they do  elsewhere.  But the performance of the US incumbents seems to be an open invitation to these firms to take a lot of market share from HP and Dell here–as they are already doing abroad.

Anyway, what I think we’re seeing in the HP and Dell results is the loss of share that weaker players experience in times like these–not evidence of overall economic malaise.

Big Lots

…another company with weak results.  I don’t think Big Lots’ poor performance is indicative of macroeconomic weakness, either.  On the contrary.  I see it as more evidence that consumers are trading up, because their personal economic fortunes are improving.

Trading up and down are complex phenomena.  In bad times, the Saks customer may shop at Target, the target customer at Wal-Mart, the Wal-Mart customer at the dollar stores.  The dollar store customer may just not consume or buy at venues that are below Wall Street’s radar screen.

(Of course, trading down among retailers isn’t the only effect of recession.  Overall, consumers buy less.  They also buy more plain-vanilla, less expensive items that they can use for a variety of purposes.)

In good times, the opposite occurs.

But in both situations, only the merchants at the bottom of the chain and at the top see unambiguous results.

I think two forces are at work in Big Lots’ sales:  rainy day customers are trading up; and, unlike the more progressive of the dollar stores, BIG hasn’t expanded its offerings enough to hang on to more affluent buyers.

my bottom line

I see the results for HP, Dell and Big Lots as simply what happens to weaker companies in a US growing at 2% a year.  The poor numbers aren’t reasons to run out and buy the S&P 500.  But, equally, they’re not a reason to sell, either.