Strong Desktop Sales Suggest Upside to HP’s Stock

HP (NYSE:HPQ), which competes with Dell (NASDAQ:DELL), Acer and Apple (NASDAQ:AAPL) in the global PC market, saw strong demand for its business desktops in the first quarter.  According to the company’s earnings release, its desktop sales rose by 27% over the previous year, ahead of the 17% growth in notebook sales.

The growth in HP’s desktop sales was driven by improved average selling prices and higher unit shipments. We have increased the Trefis price estimate of HP’s stock slightly from $53 to $54 in part to reflect the improved outlook in the desktop business.  Below we discuss the trends for HP’s desktop business in detail.

1. Desktop prices to decline at slower rate

HP’s average desktop price is benefiting from the ongoing corporate refresh cycle as businesses often purchase high-end configuration desktops.  Expecting the demand to continue among HP’s corporate clients in second half of 2010, we have increased our estimate for average desktop price from previous $460 to around $500.  Longer term, we expect desktop prices to decline and reach around $270 by the end of Trefis forecast period.

2. HP’s share to grow in desktop market

The unit shipments of HP’s desktop systems increased 23% in the first quarter. As a result of its strong desktop business, HP’s management indicated that the company gained 8 percentage points of market share in the US enterprise desktops market.

We have increased our 2010 estimate for HP’s market share in global desktops sold from a previous 19.5% share to 20% share.  We expect this to grow further and reach 20.5% share by the end of Trefis forecast period.

You can modify our forecast of HP’s desktop average price and HP’s share in global desktop sold to see their impact on HP’s stock.

You can see our complete model for HP’s stock here.