The top performing stock of the 1990s continues to struggle. Dell Computer announced both earnings and revenue will be below prior forecasts.
Earnings for the quarter have been cut to 33 cents, down from previous forecast of 36 to 38 cents a share. Revenue for the quarter is now expected to be ~$14.2 billion, the low point of previous estimates of $14.2 billion to $14.6 billion.
We previously highlighted the ongoing decline of the formerly vaunted and rightly famous Dell customer service, which now aspires to be merely average or worse.
Apple passed Dell in market cap back in January 06, and they have jostled back and force for cap leadership since then. Once Dell reopens, I would expect to see Apple leap into the lead by a wide margin over Dell cap wise, for the foreseeable future (or until Apple lowers guidance).
Dell halted after the close, $26.43 last . . .
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UPDATE: May 8, 2006 4:32pm
Dell Inc. shares re-opened down 4.7% at $25.20, and fell as low as 24.81 in after-hours trading…Ouch.
UPDATE 2: May 9, 2006 6:22am
This chart is a pretty convincing argument why investors should not fight a major trend:
Why would APPL lower guidance? Don’t get me wrong, I was sick when I couldn’t go long apple years ago and think Apple is priced into . That said what about their business model or costs expose them to anything except general trends? Perhaps you have one or two examples of people abandoning OS Server for MS Small Business Server? Perhaps you wish to ignore the thousands in the other direction? Oh, iTunes is crumbling? QuickTime? Perhaps the scion of Apple being annointed Disney heir? No, Apple has walked a tightrope for decades.
BR replies: I have no reason to believe Apple will or wont. I was merely cracking wise.
“For the foreseeable future or until Apple lowers guidance” means I have no clue what’s gonna happen with Apple. And I’ve been out of the stock since just under $40 (from $7.40) . . .
Moore’s Law is a deflationary beast. I think they put all that bloatware on their computers to slow them down enough that you’ll actually need to buy another in a few years.
Vista is going to have much better security which should prevent computers from slowing down over time. The thought of a computer running Vista for ten years without need for a replacement must scare the crap out of Dell.
Even without crappy service they’re facing the prospect of the $100 PC in the not too distant future. Apple is going to have the same problem when people realize they’ll never need to upgrade their 80GB Ipods. Maybe that’s why they’re so eager to push the video Ipods.
Great blog but I’m convinced deflation is inevitable regardless of what the Fed does.
Any thoughts on how this might affect Intel?
(BTW, NDE just hit $50 today, a new all time high, I guess on the back of the Golden West news. What does that say about the housing/mortgage debt bubble?)
soiled?
that is indeed Bear’s revenge.
Look, they just announced a big R&D center in India. The more they bury themselves in India, the more they will spiral down. We have all seen this coming for a long time.
And Intel, well, they trusted their last chip to India and it bombed. They wound up two years behind AMD. Dell doesn’t sell AMD, so that just furthers their issues.
Both of these outfits lost customer focus and settled for cheap for the sake of cheap. Now they are paying a big price.
The WSJ recently had a great editorial on Charles Koch, the head of privately owned and hugely profitable Koch Industries.
In the editorial, Koch restates a powerful truth: “The short-term infatuation with quarterly earnings on Wall Street restricts the earnings potential of Fortune 500 publicly traded firms. Public firms are also feeding grounds for lawyers and lawsuits.”
With all the small-minded crap Dell has put its customers through the past few years, they are practically a poster-boy for the dangers of short-term earnings infatuation.
This really isn’t a surprise; Dell’s “desperate” acquisition of Alienware should have signalled that Austin has big problems.
Dell is facing the reality that operational efficiency can only be pushed so far (Walmart is in a similar place). PCs are commodities and most users see no compelling reason to upgrade other than security to upgrade their machines. The latter point highlights Dell and other PC manufacturers’ susceptibility to the Windows upgrade cycle. By targetting performance oriented users, like gamers, who upgrade frequently and purchase high-priced machines, Dell is trying to capture the growth trend in the computer business. But because of a reputation of using cheap, proprietary parts and tactics like loading PCs with bloatware, Dell alienated these users long ago. That is why there is a lot of general skepticism about the viability of the Alienware deal.
Apple is heading in the opposite direction on the strengths of OSX, the total user experience that they promote, and their reputation for hassle-free products. Attempts by Dell to produce MP3 players and other branded peripherals fall flat because users increasingly value unintrusive technology, which goes counter to Dell’s philosophy.
Dell should start supporting the development of Linux and AMD. The longer it stays tethered to Microsoft and Intel, the worse things will get.
$24 now. $20 within the next 12 months.
Wow,
We all hate Dell. Personally, I think Dell is getting close to quite a buy. But, given the fact that I expect the market to take a turd, it’ll likely drop further.
The opposite side: I think Dell in India is good for Dell. Not for call center support in America but to develop their brand and loyalty of the Indian business and consumer community by investing in India. And, as I recall, they moved some of that back here. While AMD is eating Intel’s lunch, Dell is not a foolish company. I am vaguely familiar with Intel’s arrangements with large customers. The benefit Dell is getting in financial support from Intel by remaining totally Intel is likely much more attractive than the incremental business gained by dual sourcing AMD. ie, Intel throws around massive dollars to their best customers. Likely nine figures in the case of Dell. Dual sourcing also increases development, manufacturing and support costs substantially. Same reason Southwest Airline only uses Boeing 737s or your corporate help desk tells you what PC you are going to use. And, Dell supports Linux. But, who the hell wants it? It sucks. If the market was more rich for Linux rather than just talk, they’d be marketing it more heavily. You can get it preloaded on corporate PCs. Minor niche with limited appeal unless you are running a massively parallel server farm for seismic studies at Schlumberger.
Dell is more of a supply chain company than anything else. As long as they have that advantage, they will be just fine. And, I personally believe we are about to undertake a digital content revolution that will continue to drive new innovations Dell will capitalize on. I don’t know about any of you but if I ran my apps on a three year old PC, I’d we waiting more than working.
A contrary point of view.
“And, I personally believe we are about to undertake a digital content revolution that will continue to drive new innovations Dell will capitalize on.”
You’re right but the wiz-bang stuff will be the result of open standards and good software, open source or otherwise. The human brain doesn’t double in speed every 18 months like CPUs do. Software has some catching up to do.
Self-made billionaires have a way of bouncing back.
“The benefit Dell is getting in financial support from Intel by remaining totally Intel is likely much more attractive than the incremental business gained by dual sourcing AMD”
Probably not. The server market is the only growth market and corporate buyers are going AMD for performance and less power consumption. That leaves Dell and Intel out.
“Self-made billionaires have a way of bouncing back.”
Who did you have in mind? Ellison, McNeally?
me: “corporate buyers are going AMD”
From my vantage point I can confirm this.
“Who did you have in mind? Ellison, McNeally?”
LOL. You’re right, of course; but one has to dig deeper to understand the differences between the men.
Anyhow, more on topic: in the medium-term, it does not matter if DELL’s machines are not the best, nor does it matter if buyers are moving to AMD. What matter is just this: is there someone at the top who can see reality (what *is*), and not be blinded by his own “vision” of what *ought* to be. If Dell is such a person, he’ll wake up, change assumptions, and spin the company on a dime.
“If Dell is such a person, he’ll wake up, change assumptions, and spin the company on a dime.”
But do you have this faith in Kevin Rollins, the current CEO of Dell, Inc.?
Changing assumptions means slaying sacred cows within an organization. Is Dell ready to abandon its subsidy-fueled business model? I don’t think so.
Consultants would have us think that Dell somehow out-operates its peers but that margin is far smaller than it was just two years ago. It’s the soft-money from Intel, AOL and others that support Dell’s low prices. Dell also can’t work the miracles necessary to low-ball Asian manufacturers.