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One of the more surprising things from HP's (NYSE:HPQ) Q1 earnings was on the performance of PCs. Quite shocking actually, at least to me. What we learned:

  • Total units grew 6% y/y
  • Notebook units grew 5% y/y
  • Desktop units down 3% y/y
  • Unit growth in both commercial and consumer segments
  • "PC market contraction is slowing"

In a CNBC interview, Meg Whitman is even more positive, saying "I think we're going to see more brightness in the PC market."

(Aside: What I don't understand is the variance between HP's numbers and Gartner's research. Based on Gartner's preliminary estimates, it says HP's calendar Q4 unit shipments were down 7.2%. One possible difference is HP's quarter ends Jan 31, but that's still a wide variance. Something is not adding up here.)

Regardless, what is reported is reported. If the recovery is for real though, this obviously is great news for Microsoft (NASDAQ:MSFT). Consumer Windows and Office are still large contributors and the biggest headwind facing Microsoft.

Now I have no idea what PC sales will look like going forward. The quarter may just be an anomaly. Or perhaps it's just Whitman doing her magic and taking share from other vendors. But I do think expectations for the PC market is low and many have already proclaimed it to be "dead".

So this actually sets up well for Microsoft. We all know the Enterprise is doing well, but the consensus seems to be that Windows is in terminal decline. So any positive turn, especially in consumer PC, will be free upside.

Disclosure: I am long MSFT call options. I have no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: A Positive Surprise For Microsoft: HP Hints PC Recovery