Dell's Q1: Wild cards aplenty

Dell's first quarter is expected to be in line with expectations, but analysts are getting antsy about the enterprise technology demand picture.

The company's first quarter comes amid the following:

1. Worries about corporate technology spending after Cisco's outlook.
2. Questions about whether Dell can get traction from its most recent acquisition binge.
3. And concerns that the PC business and how that'll affect Dell's bottom line.

Wall Street is looking for first quarter earnings of 46 cents a share on revenue of $14.9 billion. Analysts expect Dell to hit expectations as well as its outlook for the year.

A scan of analyst research notes reveal confidence in Dell, but most observers realize the company remains a work in progress. Here are a few wild cards to ponder:

• Business demand. Large enterprise and SMB account for 55 percent of sales and 70 percent of operating profits. If corporate demand falls so does Dell.
• Quest Software next? Dell has gone software acquisition happy of late, but it needs to buy a beefier company to offset hardware margins. Jefferies analyst Peter Misek argued that Quest Software would be a logical purchase to round out Dell's cloud strategy.
• PC component costs. Barclays analyst Ben Reitzes noted that Dell's revenue may be under pressure. Gross margins will also be affected as DRAM and panel prices increased even has hard drive prices fell. "Looking forward, we believe gross margins could remain pressured given PC cost have been tracking higher of late," said Reitzes.
• Server upgrades. Stifel Nicolaus analyst Aaron Rakers said in a research note that Dell has a time-to-market lead on the latest Intel Romney-based systems. Dell should be seeing strong demand.
• Education demand: "The public vertical will remain a focus of potential weakening – accounting for about 26% of both revenue and vertical operating income. We believe investors could increasingly question an accelerating trend toward iPads being used in K-12 education going forward," said Rakers.
• What can Dell's acquisitions produce? Dell has acquired Wyse, Force10 and AppAssure. Analysts seem most interested in Force10 and networking gear sales going forward.

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