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H-P rallies as contract upheld, Gartner reports server share gains

  • The GAO has upheld a $3.5B, 5-year, IT services contract granted to an H-P-led (HPQ +5%) team by the U.S. Navy in June. Harris (HRS -0.7%), which had made a competing bid in partnership with Computer Sciences (CSC +1.3%), was protesting the deal.
  • Wells Fargo views the ruling as "modestly positive" for H-P, and notes the deal is "one of the four large service account runoffs expected" for the IT giant's struggling services division, which is expected to see revenue drop another 4%-6% in FY14.
  • Separately, Gartner's preliminary Q3 server estimates indicate H-P took back share from Dell in Q3, as the latter dealt with LBO-related customer concerns. Gartner thinks H-P had 26.9% of the server market on a unit shipment basis, up from 25.8% a year ago. By contrast, Gartner estimated in in August H-P's Q2 unit share fell 480 bps Y/Y to 23.9%.
  • Dell's unit share is believed to have fallen 350 bps Y/Y to 19.5%; the company saw a 50 bps unit share drop in Q2, but gained revenue share thanks to higher ASPs.
  • Thanks to both weak industry demand and share loss, H-P's high-end server sales fell 26% Y/Y in its July quarter, and its x86 server sales fell 11%. Oct. quarter results arrive on Nov. 26.
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