Dell: Still tethered to PC sales

Dell: Still tethered to PC sales

Summary: Dell's fourth quarter results are expected to top expectations, but the larger question for the company looms: Can it grow its storage and services business fast enough to overtake its reliance on PCs?


Dell's fourth quarter results are expected to top expectations, but the larger question for the company looms: Can it grow its storage and services business fast enough to overtake its reliance on PCs?

That question was raised in an earnings preview by Collins Stewart analyst Louis Miscioscia, who has been around the industry a long time. Miscioscia was among the first analysts to see Apple's rebound.

Wall Street is expecting Dell to report earnings of 37 cents a share on revenue of $15.7 billion. Gross margins are expected to be 18.62 percent.  Dell's outlook may be dinged by Intel's Sandy Bridge chipset flaw. Earlier this month, Dell said the flaw affects the XPS 8300, Vostro 460 and two Alienware products.

Miscioscia's take goes like this:

  • Dell's outlook last quarter was conservative.
  • A strong corporate IT buying cycle should boost Dell.
  • But 71 percent of its product mix is still tethered to lower margin and slower growth PC sales.
  • It's unclear at this point whether new areas such as servers, storage, networking and services can be large enough or grow fast enough to counter a dependence on PCs.

Indeed, PC sale data from the likes of Gartner and NPD have been lackluster.

"We do believe management is doing many things right but the transformation is taking time," said Miscioscia. The task for Dell: grow servers and storage faster than the market to offset what's likely to be a slower-growth PC business. In other words, Dell is going to have to be more aggressive with acquisitions, but the window for big transforming deals is closing.

In any case, Dell's fourth quarter may look a lot like the ones before. Decent results and talk of more diversification and acquisitions to change the product mix. Fortunately, Dell has a few economic tailwinds.

"IT spending is recovering in conjunction with improving global macro economic trends led by spending in storage, servers (migration to private and public clouds), followed by PCs. After 12-18 months of depressed investment, Corporates started to invest in infrastructure upgrades last year," said Deutsche Bank analyst Chris Whitmore. Dell is likely to win some of those deals.

Topics: Hardware, Dell, Processors

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  • Dell cannot compete

    Seriously their hardware is junk quality. Their "status" is about the same as Wal-Mart. They have led the race to the bottom and have lost #1 in sales.

    People equate Dell with cheap Junk computers. Nothing they do will change that as their computers are still junk. They failed with Adamo in trying to establish a "prestige" brand. It's like Wal-Mart selling Dom Perrignon.
    • RE: Dell: Still tethered to PC sales

      @itguy08 I agree totally. Over the last 10 years or so I have bought approx 100 dell computers, however I have bought my last one. The quality has deteriorated in a race to the bottom.
    • I disagree. I've had better experienec with Dell hardware

      then we have had with both HP and Acer.<br>Acer, yes people look at that as junk because it's not reconized as well as Dell or HP, but most people I know have Dell.<br><br>Funny that so many people knowingly want to spend their money on "junk", so your statement that <i>People equate Dell with cheap Junk computers</i> is just BS on your part, IMHO.
      John Zern
      • RE: Dell: Still tethered to PC sales

        @John Zern

        People buy Dell because they think it's a good brand. People also shop at Wal-Mart. Neither are great and both are junk.

        And Dell's marketshare has been declining for a while now so, yes people spend their $$ on junk. It would be interesting to see Dell's consumer marketshare over time and their repeat buy rates for consumers.

        The only ones that continually go back to Dell are businesses who don't care about breakdowns and performance because the same ones fixing them buy them. IOW: Job Security.
    • The answer is support


      Dell's best game is to essentially out-support Apple. Apple has a reputation for outstanding customer service. My personal opinion is that people are more likely to believe that the issue is between the keyboard and chair since in their mind they bought "the best", but the issue is CLEARLY Dell's fault no matter what.

      Where Dell can start a long-term strategy is to start a new policy in their support departments: Don't say no, ever. If people feel that they're getting what they want, even if it is them who is being unreasonable, they will slowly start to turn the tide of people equating Dell support with calling India to have someone say they can't/won't help them. Even if the issue is end-user software related, have the technicians provide remote assistance. Make warranties two-tier: ship-away and on-site, then by duration. EVERYTHING is covered either way.

      Yes, it will cost them dearly in the short-term. Yes, it will piss off some shareholders. But if Dell could keep this up for the next three years, general opinion might start to change. Oh, and of course, all of this would have to also involve changing how they build stuff. Make even consumer machines sturdier, don't skimp on the build quality. If all of this makes machines $100 more expensive out of the gate, so be it. Dell will never make any money off $350 laptops; those people invariably require the most support help anyway. Let Acer take the I'm-too-cheap-to-pay-a-decent-amount-for-anything-i-depend-on-as-much-as-my-computer crowd at the sub-$500 level. Dell led the race to the bottom, they can raise sea level again, as long as they're willing to bow out of the too-cheap market.

      A friend of mine just dropped $1,100 on a upper-mid-range tower from Dell. It was bloatware free and faster than anything they previously owned. It blew away their expectations, and that's really all it takes. Dell can't play both sides.

    • RE: Dell: Still tethered to PC sales

      @itguy08 <br>How can you say Walmart is junk. Sure they are a big company and as such a target (no pun intended) for internet mudslingers)...but they are a retailer they don't manufacture their own products...So if they sold Dom Perrignon at a lower would that be wrong? And Dell must be able to compete they've been doing so for several years and often near the top. If you have a grudge to bear just admit it don't just fling insults at companies saying they are junk. I agree with John Zern below.
  • RE: Dell: Still tethered to PC sales

    I bought a 15" and 13" Dell laptop late last year and found both to be of reasonable/fair value. I also found build quality to be excellent. Both came with a standard Win7 DVD too (locked to the BIOS) and not one of those awful recovery discs.
    • The best part is those Win7 DVD, though not all ship with them

      @bradavon <br>some of the less expensive require you to burn a couple of "recovery disks", which isn't too bad, (though many never get around to it).<br>I agree, good build, good price, though my last unit was a scratch and dent unit: saved 145.00 over "built from scratch", but Core 2 Quad and Haupagge TV card with WMC remote was more then enough to live with 2 scratches on the side panel you can't see!

      For work I order Dell and agree that it's a resonable value, and they just get the job done, which is all we ask.
      John Zern