“Struggling Dell provided a glimpse into just how difficult its turnaround will be, reporting disappointing fourth-quarter results that include its first quarterly sales decline in five years,” Louise Lee reports for BusinessWeek.
Lee reports, “Investors will likely have to wait many months for any financial improvement. In a press release, Dell says that ‘in the next several quarters, the company expects that growth and margins will continue to be under pressure as it implements and refines’ its strategies. “That implies that Wall Street’s current expectation of things improving soon might be optimistic,” says Brent Bracelin, an analyst at Pacific Crest Securities.”
“The Round Rock (Tex.) company says net income came in at $673 million, or 30 cents a share, for the fiscal fourth quarter ended Feb. 2… And in its first revenue decline in five years, Dell says sales fell 5%, to $14.4 billion, in the quarter,” Lee reports.
MacDailyNews Note: It took Dell $14.4 billion in revenue to generate just $673 million in profit. By contrast, last quarter Apple generated $1 billion in profit on slightly less than half of Dell’s revenue ($7.1 billion). Just how much room does Dell have left to cut? Since Dell has nothing unique to offer — no Windows box assembler does (and forget Linux; outside of the server room, that dream is over) — how exactly does Michael Dell or anybody “fix” Dell?
Lee continues, “The company says unit shipments of desktop computers fell 18% and shipments of laptop machines grew just 2% from a year ago. Revenue in both segments fell… Analysts pointed to other red flags as well. Despite the decline in sales, Dell’s head count was 82,000, up 18% from a year ago, suggesting a rise in fixed costs relative to sales volume.”
Lee reports, “The lack of details emerging from the company is frustrating to analysts and other observers. “Investors want to know exactly what are the strategies and tactics” Dell is undertaking, says Fearnley. “There are still more questions than answers.” Citing the SEC probe, the company has yet to submit its detailed quarterly filing for last year’s fiscal second and third quarters and says that all results for those periods, as well as the most recent quarter, are preliminary.”
“‘It will take time to realize the future benefits of the improvements we are making today,’ CEO Michael Dell said in the earnings release. What’s less certain is just how much time Wall Street is willing to give him,” Lee reports.
Full article here.
Douglas A. McIntyre writes for 24/7 Wall St., “There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.”
“Dell faces several operational issues which it may not be able to address. One is a flattening in growth in PC sales, especially in the US. Another is a loss of market share. Yet another is the resurgence of rival Hewlett-Packard (HPQ). Dell’s model of selling directly to customers may be a handicap as other PC companies sell through retail chains. And, it has already taken so much cost out of the company by working down component prices from suppliers that there is not much left in that area to cut costs,” McIntyre writes.
McIntyre writes, “There is the temptation to look at the success at Hewlett-Packard and ask whether Dell can replicate it. But, HP is not doing as well as it might appear at first glance. The company’s guidance disappointed Wall St. In its most recent quarterly report, notebook revenue rose almost 20% quarter over previous quarter, but desktop sales were little more than flat. And, HP has its huge printer business to help buttress its overall hardware sales. Dell’s server sales revenue for 2006 was flat, so the company probably cannot look to that business as a driver for growth.”
Full article here.
MacDailyNews Take: Dell is a run-of-the-mill PC box assembler that offers nothing unique now that their price advantage has been eroded by other run-of-the-mill PC box assemblers. Dell does have at least one bridge to salvation, but, unfortunately for the company, CEO Mikey burned it to a crisp years ago. If Dell could somehow convince Apple CEO Steve Jobs to exclusively license him Mac OS X, he’d have a unique product to sell for a change. Perhaps Dell could focus on the enterprise market with Dell hardware running Mac OS X server and leaving rest to Apple initially. That might be a good deal for Apple, as it would give the Mac a big foot into the door of businesses worldwide. It would be a great deal for Dell, as it would probably save the company. Failing a game-changing deal like that with Apple (likely since Jobs would probably favor HP for such a deal), Dell would be better off following the advice he gave Apple back in October 1997; the same advice with which we’ve headlined this article.
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