Where I believe DELL is having problems:
Problems for a company doing as well as DELL obviously means relative to its valuation and expected business plan.
So, before you start bashing, I'll simply say that I still do not have a position in this company, long or short.
About a year ago, I began posting on this board that I viewed the entry of eMachines as a significant development for DELL. Several DELL defenders roundly criticized me for that view, but as I view the latest news from DELL, I'm more certain than before that it was a watershed event for DELL.
No, I didn't believe that DELL competed directly with eMachines on a significant basis, especially with the Fortune 1000 companies that is the firm's major market.
Instead, I viewed the eMachines as an assault on the individual and small business owner that would seriously force DELL to either lower their price points and margins considerably to gain a foothold in this sector or to keep their prices high and garner a lesser market share.
No, eMachines itself wasn't the problem. It would be the others such as CPQ joining the fray at the sub-$800 price point.
Recall that early last year, M.Dell stated that their continued growth prospects hinged in part on their ability to target the individual and small business owner, the type who traditionally buy their PCs from a brick and mortar outlet (CompUSA or Office Depot type).
The reason that their growth targets hinged on this sector is that it was the fastest growing sector and Dell knew it. Many on this board tried to argue against the concept, but DELL itself understood the problem.
Now comes the latest pre-announcement in which DELL acknowledges that it didn't get the penetration in the individual and small business market that it wanted. No, that's not the only problem that DELL faced this past quarter. But it remains a long-term problem as long as others with sufficient staying power want to offer competitive computing power at sub-$800 price points (or even sub-$1,000).
Dell is wonderful company, superb in fact. I probably have reservations about the level of insider trading from early December to early January in light of the magnitude of the shortfall, but that's probably not too relevant. |
