Darrell -
I think you are missing the forest for the trees. These analysts have begun to see what many on this thread have been saying for a while - DELL is likely to be a victim of its own success in the PC business unless it moves "outside of the box", and DELL management has said and shown just the opposite - they are going to focus on the box (although the 2 recent quarters show some problems even with that strategy).
Let's look at the rock and hard place DELL is between. They have developed a model that made the commercial PC business unprofitable for their main competitors. But unlike DELL, all of those competitors have a majority of their revenues in areas where DELL does not compete. One possible outcome would be for those companies to just cede the market to DELL but that is unlikely, and it's not what happened. Instead they determined that they would move to a model where their commercial desktop business became an adjunct to their systems business rather than a growth or revenue leader. We have now seen IBM, CPQ and HP all moving to a model that drops their desktop ASP by nearly half over the next 12 months. This will have the effect of dropping desktop revenue as a proportion of overall corporate profits while providing a compelling value to customers and making the commercial lines profitable (or at least reducing current losses). For these companies, a 30% decline in revenues from commercial desktops, if combined with decent unit numbers, would have a minor impact on overall business, and might even improve the earnings numbers.
Where does that leave DELL? With roughly 80% of its revenue in that segment, DELL can hardly afford a 40% revenue hit. DELL had been projecting 40% revenue growth and has guided down to 30% growth - their competitors are projecting 10% to 15% growth. For DELL to continue gaining market share in the face of these new commercial desktop price points, they will need to field similar products themselves. This could easily mean (will almost certainly mean) that DELL's ASP will go down, and unit growth of even 50% might produce revenue growth much less than 30% - and the notion that DELL will continue to gain share at historic rates is already suspect. They would actually have to increase their historic rate of share penetration to achieve their lowered revenue goals.
Under that scenario, the analyst's comments are not contradictory. |
