Costs confound beleaguered Dell, likely weighing on shares and delaying its turnaround

“Disappointment with Dell isn’t over yet. The world’s second-largest computer manufacturer posted fiscal third-quarter sales results that exceeded Wall Street expectations, but its profit performance and outlook for coming quarters left investors dismayed. Shares tumbled about 10%, to $25.25, in extended trading on Nov. 29, after the results were released,” Louise Lee reports for BusinessWeek.

“Dell’s expenses are ‘still considerably higher than we want,’ Chief Financial Officer Don Carty said during the company’s first conference call with analysts in a year,” Lee reports. “The results suggest a long-running turnaround attempt at the Round Rock (Tex.) company may be proceeding more slowly than Wall Street anticipated. The company is struggling to emerge from almost two years of slowing growth and slipping market share.”

“Brent Bracelin, analyst at Pacific Crest Securities [says], ‘It doesn’t look like the company has trimmed enough fat,'” Lee reports. “Earlier this year, Dell said it wants to reduce its workforce by about 10%, but as of Nov. 2, Dell had cut only about 2.5% of the 84,000 employees it had on Aug. 3. Carty insisted, though, that the company ‘is still driving to that [10% reduction] number.’ Carty added: ‘We’ve identified a considerable amount of low-value work.'”

MacDailyNews Take: Yeah, like everybody at the entire company. At least Mikey doesn’t have to worry about eliminating world-class industrial designers.

Lee continues, “Gross margin performance, too, didn’t meet some analysts’ expectations. Gross margin inched up to 18.5% of revenue, from 16.6% a year ago, but still fell below the 19% analysts were projecting. The company blamed component costs, saying they didn’t decline as steeply as the company was projecting. Shaw Wu, analyst at American Technology Research, questions why that’s the case, when some of Dell’s main competitors, including HP and Apple have recently enjoyed the benefits of low component costs.”

Full article here.

iSupply reports, “Dell underperformed the market with meager growth of 1.5 percent.”

“Company market share fell to 14.6 percent in the third quarter, down from 16.3 percent a year earlier. Dell posted the weakest growth among the Top-5 PC OEMs during the third quarter,” iSupply reports.

Full article here.

MacDailyNews Take: Why waste your money on an OS-limited, ugly, wedge-shaped Dell laptop or some ridiculous, neon-festooned Dell tower, when you can get an OS-unlimited Apple Mac portable, tower, or all-in-one crafted by world-class industrial designers?

The solution is, of course, obvious for Michael Dell: Shut it down and give the money back to the shareholders.

28 Comments

  1. WOW

    “We’ve identified a considerable amount of low-value work.'”

    Boy or boy that ;s got to make the average employee at Dell stand up and yell… WOW were sure love around here!

    If I was working at Dell I would be pissed alone about now and would have started looking hard for a new position!

    Talk about making a guy wanted…

  2. itanibro: It’s interesting, as bad as Dell seems to be doing in the media…we just ordered a kajillion dollars worth of new Dells for 2008.

    And most probably with zero margin on the hardware deal, all of the meager profit coming from footnote provisions in the contract.

    MDN word: “paid” ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  3. “the government and Dell must have some kind of a good deal going on”

    Yeah, you are right. It’s called an uneducated IT staff that is not willing to learn and continues to convince (scare) uneducated management that they have to stick to their PC’s and Windows. Plus, when you are so heavily invested in Windows ONLY programmers and programs, management buy’s every line of their propaganda about needing to stay with PC’s. Security is another line of lies they spew on management that makes absolutely no sense but because management is so scared (stupid) to know any better, continue their same ways. Then their is job security for these old dumb smuck’s. Keep them scared, tell lies and ALWAYS stay busy putting out fires, seems to be at every agency.

    I should know, out of a 2000 employee agency, I (we) have the only Mac’s there. We have 10 now and what a battle it was but it was a good fight. They won’t (can’t) support our Mac and that is perfectly fine by me but then again, don’t need it. And isn’t it funny when everyone else is down, they (Management and critical information folks) come down and use our machines.

    Every staff member is jealous and want them but, I’m not their boss.

  4. Though our agency was buying Dells for several years, Dell decided it wasn’t making enough money on the contract. When they chose not to renew, the contract went to HP. The fact that we continue down that well trod route, while purchases of Apples are blocked, reflects several factors:

    * an IT organization that continues doing what it’s been doing, buying what everyone else is buying
    * a procurement process that refuses to consider total cost of ownership
    * a management that is ready to throw more resources (money) at a problem, rather than look at the underlying technology choices

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