HP "vs" Dell

Last week, CNBC made much of Hewlett-Packard's recent short-term revival, and contrasted it with Dell's recent weakness. The latter's revenues have been falling short of expectations, and its total returns are no longer consistently market-beating. I even wrote recently of the positive signs in the nature of the way Mark Hurd seems to be changing HP.

As the five-year price chart from Yahoo above clearly shows, HP has been on a consistently superior total return path for nearly 5 years, and from a serious trough for the last 3-4 years. In contrast, Dell has been flat or declining, both absolutely and relatively, for about 2 1/2 years.

Yes, for the recent period, Dell has seemed played out. Exhausted in the sense of a business model with little headroom for profitably surprising the market.However, as I observed about Intel recently, let me do so for Dell now. Take a look at the Yahoo-sourced long term performance chart below.

For an entire decade, Dell out-performed HP, the S&P500, and not a few other tech companies with its solid business concept and nearly-flawless execution thereof. Isn't a decade enough? This company has excelled, in what should have been, and was, a very tough product/market segment, for much longer than should have been expected. Than is the norm.

To look at just the last 5 years is to seriously misunderstand both business history, and Schumpterian dynamics. Dell is probably not "coming back," anymore than Microsoft or Intel are. That is, it's unlikely that any of the three will soon post a consistently superior total return record, versus the S&P500, on the back of consistently superior revenue growth.

But this in no way diminishes their prior accomplishments. In fact, it is those accomplishments which have brought them to this point. Microsoft has played out its "technology," for the most part. Intel is stretched amongst separating customer segments, while its once-weaker rival, AMD, focuses on profitable opportunities with laser-like precision. Dell simply has little room left to exploit its vaunted direct-sales model, amidst the increasing commoditization of its main products, desktop and laptop PCs.

The funny thing about the second chart, to me, at least, is that, if not for Dell, you'd think HP had done very well. And never really "in trouble" until these last few years. It just shows how moderated our expectations can get, and how we sometimes forget what "really" excellent performance looks like.In fact, in hindsight, you would have been happy holding both for a decade.But who knew in advance? And, of course, it's always easier in hindsight to see the end of a holding period than it is when you're actually doing it.