More on Dell

I’m still pretty rattled by the news from Dell (DELL). Already, at least two firms have downgraded the stock this morning. In the pre-market, the stock fell below $30. There’s still a lot we don’t know, and won’t know until next week’s earnings report.
Some of my questions are: Were the forecasts overly aggressive? How much of this is due to pricing? Is it just PCs? Is this mostly at the low-end? I was impressed by the company’s frankness last quarter. Let’s see what they have to say now.
I’m still holding on. The shares are too cheap here to let go. The New York Times has more:

Dell, which is known for driving down PC prices, has decided to sacrifice market share for profit growth, said Brent Bracelin, senior research analyst at Pacific Crest Securities in Portland, Ore. “Dell’s been less aggressive in the entry level,” he said, noting that the lowest-price Dell system has moved up to $399 from $299. The company announced in September that it would also market a line of desktop and laptop computers as luxury models.
Much of the industry’s growth is coming from robust demand in China and India. While Dell is reporting strong growth there, others are reporting even stronger growth. Lenovo’s sales, for instance, grew 250 percent worldwide, according to a report by market analysts at IDC. Mr. Smulders, the Gartner analyst, said that part of the problem was that Dell’s direct-sales business model was not outgunning the competition in the smaller cities of China.
Analysts, while observing Dell’s problems, have been optimistic about the company’s prospects. Laura Conigliaro, an analyst at Goldman Sachs, said in a research report in early October that she did not fault Dell’s execution, but said its “biggest miscue was in chasing a higher growth rate for so long.”
She lowered her rating on Dell in August after the company’s second-quarter earnings report signaled that its high-growth days were behind it. But in early October she said she thought that Dell’s 15 percent premium to the Standard & Poor’s 500 seemed “very reasonable.” Ms. Conigliaro could not be reached for comment after the Dell announcement. A few other analysts upgraded the stock in October.
Investors have been wary of the company’s new strategy. The stock was trading around $40 a share during much of 2005 and began falling in August.
“There have been lots of signals that Dell’s business was falling,” Mr. Bracelin said. He said he was not shocked by the news, but he still did not see a clear indication that the company had figured out a way to re-accelerate growth.

For more, you can read this, this and this. And this.

Posted by on November 1st, 2005 at 9:22 am


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