Analyst: Dell's core PC business 'remains under pressure'

One analyst says Dell is benefiting from very low expectations where consensus is looking for a 10 percent year-on-year decline in revenue and a 20 percent year-on-year decline in earnings per share.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

Dell will report its October quarter earnings this Thursday, and while Sterne Agee analyst Shaw Wu believes that the numbers will show that the company continues to be under pressure, the company will likely meet or even beat Wall Street's low expectations.

In a note to investors, Wu said that the supply chain indicators pointed to the company's core PC business to be under pressure from, "a tough macro and cannibalization from iOS and Android," but that, "given low expectations, we expect results to be in-line or better".

Dell, along with the entire PC market, is under a great deal of pressure from tablets and smartphones that are flooding the market. Cheap tablets from the likes of Amazon and Google, Apple's iPad, and cheap PCs from the likes of Lenovo and Acer are putting the squeeze on Dell from all sides.

Overall, Wu is predicting some $13.9 billion in revenue, and a 10 percent year-on-year decline in revenue and a 26 percent year-on-year decline in earnings per share.

"We expect gross margin to be in-line with consensus at 22 percent with stronger margins in servers, storage, and services offsetting PC pricing pressure," said Wu.

But Dell is tied to the PC, and that ship is sinking rapidly.

"Despite efforts to grow beyond a PC company with multiple acquisitions over the past few years, we estimate 65%-70% of its business is still tied to PCs," said Wu. "We still believe Dell needs to take bolder, more aggressive steps to reinvent itself".

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