* HP fiscal Q1 results on Feb 17; Dell fiscal Q4 on Feb 18
* HP more diversified than Dell, which is reliant on PCs
* Dell shares have outperformed HP but sentiment cooling
* Both companies look to IT services to bolster margins
SAN FRANCISCO, Feb 16 (Reuters) - With computer hardware at the top of the shopping list for many companies this year, Hewlett-Packard Co (HPQ.N) and Dell Inc DELL.O offer investors two different ways to play the information technology (IT) upgrade cycle.
HP, the world's largest technology company by sales, has been a favorite of defensive investors who like its business diversity and market breadth, relentless focus on costs and steady revenue performance.
Dell, which is still in turnaround mode, is the more speculative bet, though its stock has outperformed HP's in the past year as Dell's heavy reliance on corporate personal computer sales means it could benefit more from the rebound in PC spending.
Both companies report quarterly results this week and expectations are high for HP, which has met or beat Wall Street's profit estimates for two years running. Dell's record is more patchy, having missed analysts' average forecasts for three of the last eight quarters.
HP has moved into higher margin businesses such as IT services -- a model Dell is looking to emulate. That gives HP greater flexibility in its commodity hardware businesses and helps to manage its overall margin profile.
HP's gross margin is expected to be 23.6 percent in the January quarter, according to Thomson Reuters I/B/E/S, versus 18.0 percent for Dell. International Business Machines Corp (IBM.N), the top tech services company, reported gross margin of 48.3 percent for the December quarter.
"HP is much more diverse in terms of products and geography -- that's the edge," said Kaufman Bros analyst Shaw Wu. He will be watching HP's services unit and its profitable printer supplies business carefully, and said there are good early indicators for both.
"Services has been a cost-cutting story, and the question has been growth, and we may start to see that," Wu said.
HP is expected to report fiscal first-quarter profit per share of $1.06, versus 93 cents a year ago, and revenue growth of 4 percent to $30 billion, according to Thomson Reuters I/B/E/S.
Dell is expected to report a per-share profit of 27 cents for its fiscal fourth quarter, versus 29 cents a year ago, on revenue growth of 3 percent to $13.8 billion.
HP and Dell are both trading at around 11 times forward earnings, even though Dell's shares have risen 51 percent in the past 12 months, against HP's 38 percent gain.
But some analysts say valuing the companies by excluding their cash provides a better picture. By that metric, HP is trading at around 10 times forward earnings, and Dell around 6 times.
"What the investor base is feeling is that this isn't the breakout quarter for Dell," said Stifel Nicolaus analyst Aaron Rakers.
He said Dell's stock looked attractive in recent months, but investor interest has cooled of late amid expectations that corporate tech spending may not pick up until later this year.
PCs make up close to 60 percent of Dell's revenue and the company has been reluctant to engage in the PC price war being waged by HP and Acer Inc (2353.TW) for fear of eroding its margins. Acer has supplanted Dell as the No. 2 PC vendor.
In calendar 2009, Dell's PC shipments fell 9 percent, according to industry tracker IDC, while HP's rose 10 percent.
JPMorgan analyst Mark Moskowitz noted that HP's market share position is now higher than Dell's in enterprise PCs.
"We think that HP stands to be the bigger beneficiary of any refresh cycle in corporate PCs later this year or early 2011," Moskowitz wrote in a research note. "This prospect, alongside the positive impact of a server refresh, should help HP outperform its PC and server peers."
Research group Gartner expects global IT spending to rise 4.6 percent in 2010, on the heels of a 4.6 percent decline in 2009.
Dell has moved to diversify away from hardware with last year's $3.9 billion purchase of Perot Systems, a tech services company with a strong focus on healthcare and federal government customers.
It has also entered the smartphone business, which offers higher margins than PCs but which is chock full of competitors from Apple Inc (AAPL.O) to Research in Motion Ltd RIM.TO. (Reporting by Gabriel Madway; Editing by Richard Chang)