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Jul 10 2000 11:21AM ET More on IDEAglobal...
Dell Discontinues Upscale PC Line
From IDEAglobal
Special to CNBC.com
Dell Computer Corp. {DELL}, the world’s second-largest personal computer maker behind Compaq Computer Corp. {CPQ}, has discontinued its WebPC, a small, curved desktop computer that came with a blue case and an optional flat-panel screen. Dell quietly pulled the systems due to lackluster demand.
Investors seem to be unfazed by the news Monday, and Dell looks like it will rally in the coming weeks. The company also looks like it will establish a new 52-week high in the next couple of months.
Although Dell is clearing remaining WebPCs through its factory store, the PC will no longer be available on its Web site. Yet despite phasing out the PC, many of the technologies that were developed in conjunction with the WebPC will continue to be utilized in other parts of the company's business. For instance, the E-support button, a largish button that automatically connected people to a Dell help desk, will remain. Servers and notebooks will incorporate this feature in the future. Color-coded wires that simplify hooking up PCs will also be implemented in new computers.
The demise of Dell's WebPC is an indication that the coming revolution in style and color into the PC world may have been a bit exaggerated. Although Apple Computer Inc. {AAPL} has enjoyed tremendous success with its iMac computer, and Sony Corp. {SNE} has had success in the stylish PC realm as well, many more companies’ launch into style were unsuccessful. This looks to be the prevailing trend going forward, as it adds nothing technically to the advancements of PCs. Furthermore, price and value will likely be the greatest driving force behind PC demand.
Dell currently has a 10.5 percent share of the PC market, behind Compaq Computer's 13.1 percent share. Earlier this year, Dell reported strong fiscal first quarter results for the three months ended April 28, led by higher profit margins. Earnings for the quarter came in at $525 million, or 19 cents a share, easily surpassing analyst expectations by 3 cents, on revenue of $7.28 billion. That is 21 percent higher than the $434 million in net income and 31.5 percent higher than the $5.54 billion in revenue in the year-earlier quarter.
Despite memory-chip shortages that plagued Dell earlier this year, management recently indicated that it is comfortable with earnings projections for the fiscal year ending in January. Analysts polled by First Call Corp. expect Dell to earn 92 cents a share for the year, up from 68 cents for the previous year.
Furthermore, seeking to avert disappointments that have accompanied its decelerating growth over the past year, Dell has sought to lower revenue growth expectations to about 30 percent a year from historic rates above 40 percent and even 50 percent. Wall Street analysts have responded by projecting revenue growth of 30 percent for the full fiscal 2001.
Dell is expected to release fiscal second-quarter earnings on Aug. 10. A consensus of Wall Street analysts expect the company to have generated earnings of 21 cents a share in the quarter, up sequentially from the 19 cents reported in the latest period.
Look for an upside surprise that will drive the stock higher. The stock is already up 17 percent for the year to date, and it looks poised to appreciate at a rate greater than the rest of the market. Shares of Dell could hit 55 in the next four to eight weeks.
cnbc.com |
