This morning, Dell preannounced ahead of their August 17th earnings. 2Q revenue will be ~$14 billion, with earnings 21 – 23 cents. The revenue is a little shy of estimates of $14.23 billion;
The real disaster was the earnings shortfall: 21 – 23 cents is way below analyst consensus of 32
cents. The stock was off as much as 15% this morning, breaking $20, trading as low as $19.05 (its 19.22 as I type this).
While I have been a critic of Dell of some time now, let me give them a little credit. Their new "Purely You / Build to order" commercial is probably the best marketing thing they have done in a while — much better than the idiotic Dell Dude.
If Dell wants to play in the consumer space, they must understand that people do not have an IT department at home. A friend once called Windows 95 the IT Department Full Employment Act; Dells were purchased cheaply by corporate CIO’s with a full staff to handle the inevitable issues. SOHO owners don’t have that luxury.
I never got the sense from Dell that they truly grokked the Small Office / Home Owner, and the family student home purchaser.
My advice for them: Do not look to customer service for incremental cost cutting; they need to restore their prior, late 90s, full-on level of customer service for which they were justly famous.
UPDATE: July 21, 2006 11:45am
A commenter in the prior Microsoft discussion partially blames Redmond for Dell’s issues: Their screwup in not getting Vista to market on time is hurting the entire PC sector.
Interesting thought . . .
Look at you using underground tech jargon!
One of Dell’s comments today was that they were continuing to work on improving customer support and that it was showing up in improved sales volume (however, they are also cutting margins like crazy in certain channels, but that’s another story).
Okay, the ‘cut and paste’ below is OT (big props to Grim @ the N. New Jersey Real Estate blog, thank you!), but important nonetheless. Things to consider: who is adjusting their thinking, where they’re located, and how CA’s GDP relates to the rest of our lovely country’s GDP. Bottom line: the acceleration in the Great Housing Unwind is gaining traction with main stream folks. But wait! At least I am. Massive drama to the downside is approaching, and it will take a while before everyone really feels it.
Housing Expert: ‘Soft Landing’ Off Mark
By David Streitfeld, Times Staff Writer
July 21, 2006
Leslie Appleton-Young is at a loss for words.
The chief economist of the California Assn. of Realtors has stopped using the term “soft landing” to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.
“Maybe we need something new. That’s all I’m prepared to say,” Appleton-Young said Thursday.
The shift in language comes as debate over the real estate market is intensifying. The long-awaited drop-off is happening, but there’s little agreement about how brutal the landing will be.
Federal Reserve Chairman Ben S. Bernanke said in congressional testimony Thursday that the national housing downturn so far appears orderly.
At about the same time, however, D.R. Horton Inc. Chief Executive Donald Tomnitz was telling analysts that the home builder’s sales in June “absolutely fell off the Richter scale.” Horton, the nation’s largest builder of residential housing, has numerous projects in California.
For real estate optimists, the phrase “soft landing” conveyed the soothing notion that the run-up in values over the last few years would be permanent. It wasn’t a bubble, it was a new plateau.
The Realtors association last month lowered its 2006 sales prediction from a 2% slip to a 16.8% drop. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using “soft landing.”
“I’m sorry I ever made that comment,” she said Thursday. “When I get my new term, I’ll let you know.”
If there’s one group in California still unreservedly bullish on real estate, it might be the throngs lining up to take the licensing exams.
The state Department of Real Estate recently reported that the total number of agents in the state passed 500,000 in May for the first time. That’s one agent for every 55 adults in the state.
Appleton-Young had no qualms about predicting a hard landing here: “We’re expecting a fairly significant shakeout.”
Vista may have a small amount to do with it, but Dell did a serious GM beancounter/quality/customer service thing and is going to have to fight hard to earn back every customer. At the same time, they are going to have to keep cutting prices.
This is going to be interesting to watch. From a distance..
Here is a commentary that blames Dell for the Redmond delay:
“According to those familiar with the way Dell qualifies new software, they are very careful about their shipping OS/application sets. They put together new builds every quarter, and test them for a full quarter. This means that to ship something in October it has to be into a build set in July, which means it has to be slotted some time in April. And that’s just for an application. Now imagine what Dell’s test plan looks like for a whole new operating system.”
Re OT but important:
“Maybe we need something new. That’s all I’m prepared to say,” Appleton-Young said Thursday.
The expression “nuclear winter” comes to mind.
Or, to paraphrase “The Producers,” how about “Springtime for Bernanke in Washington, winter for California and New York.”
In the D.R. Horton conference call, management said 65% of their option conacellations were on land purchase contracts in California. In addition, San Diego and Sacramento counties are already going down. At present, the rest of the state is OK, but “softer than 2005.”
Add to that a comment in a recent LA Times article that, as San Diego goes today, the rest of the state will be going tomorrow.
As the commenter from the MSFT thread, I’d color my thoughts by saying that MSFT isn’t entirely responsible for Dell’s troubles, as evidenced by how well HPQ is doing (relatively), but the delay in getting Vista out has made it harder for Dell to hide its shrinking margin problems.
The pushback of the Vista release to Q1/07 (at least) has made it possible for corporate clients to delay hardware upgrades. Companies that might have been placing orders this summer can just sit back and wait until the fall or winter. Higher sales volumes would have helped mask Dell’s internal problems (the rising tide effect), and increased sales of higher-end machines (which Vista requires) would have improved margins.
OT: Barry, have you listened to yesterday’s DHI conference call? It’s a must! Talk about “true confessions”.
GRL and Craig H, thanks for playing along. It looks wicked bad.
Get long vega,
I put that call on last night, saw that it was 2 hours long and figured I would only listen to a bit and skip most of the Q&A. I ended up listening to the entire thing, I was so stunned by how honestly brutal management was being.
They made it pretty clear that the companies that have been buying back inflated stock and praying for a soft landing are whistling in the graveyard.
“I still find it astonishing that people call these guys innovators.”
It’s useful when they do, however, since you then know you can disregard whatever opinions such people may offer.
M$ have best been characterized as “fast followers”, and damn good ones two. Their latest “innovation” has been to switch from characterizing OpenSource as “unAmerican”, claiming now a sincere desire (oxymoron) to embrace it warmly. Hopefully, the OpenSource movement will wisely evade the risk of being duly assimilated by this relentless Borg Mother Ship.
Re DHI conference call:
I am about halfway through it, and am blown away. Whatever you can say about the homebuilding sector or the technicals of the stock (and DHI is at a 52 week low today), I have a lot more respect for DHI management now than I did before that call.
I was a victim of Dell’s poor customer service a couple of years ago. Their product has turned out to be satisfactory but their service was so ridiculously bad that I’ll never buy another one.
I told them at the time that they were being penny wise and pound foolish. I’d say there’s a better than fair chance that they’ll never recover from this.
There is a larger macro issue here as well– Apple products are finally getting traction/leverage as being superior– better operating system/no viruses/great design and—not to be discounted– vastly better marketing– Have you seen the new “i’m a PC –I’m a Mac” commercial? Hysterical–and true.
I have an iPod but always a windows machine. Now that Mac’s can ‘go both ways’ since taking on Intel chips and offering running windows as a capability–its a no brainer for my next box–“I’m buying an Mac, dude”
Apple grew its market share of laptop sales from 6% to 12% this year, in just 3 months following the availability of its new MacBook and MacBook Pro mmodels.
Apple… yes, Apple.. has 12% of the market, in laptop sales. 12%
Those harping on about Apple being insignificant and not relevant should remember this, and also remember that when quantifying Apple’s broader market share versus WinTel PCs, the calculation for the latter includes such esoteric devices as Windows-based ATMs and shop cash registers.
The Mac is Back. Dell’s loss is directly attributable to Apple’s gain, as well as being a result of its appalling customer service and cheap, shoddy products. Dell offers no compelling value proposition – its just another manufacturer of commodity PCs these days, in competition with even cheaper and no less reliable PCs from China and Taiwan. Dell is Gateway Mk2. To paraphrase Michael Dell when asked what Apple should do back in 1997, he should just “sell the company and return the money to the shareholders.”
Dude, you’re going Chapter 11.
” but Dell did a serious GM beancounter/quality/customer service thing and is going to have to fight hard to earn back every customer. ”
Just becuase Rollins says customer service is back does not mean I am going to recommend Dell. We have discussed our experiences and it will take them a long to prove it. Sorry, we won’t take your word for it.