Dude, You're Getting a Dell—at Wal-Mart
businessweek.com
<<...Revamping sales is one of several steps Dell has taken lately to reinvigorate its brand and kick-start growth. Michael Dell resumed his role as CEO in January amid the ouster of Kevin Rollins. But the road ahead will be tricky. In addition to a loss of market share to HP, and well publicized customer service woes, the company suffered a black eye in August, when it announced a recall of up to 4.1 million laptop battery packs manufactured by Sony (SNE). Another headache: A probe by the Securities & Exchange Commission into Dell's accounting and financial reporting, which may prompt the company to restate past results.
After news of the Wal-Mart deal hit, investors rolled back prices of Dell shares. The stock dipped 1.6% in Nasdaq trading May 24 to $25.84, not far below its 52-week high of $27.89 reached in January. Wal-Mart shares gained 0.9% to $46.75 in NYSE trading.
Standard & Poor's equity analyst Jim Yin points out that Dell continues to face challenges, including a dearth of new products. He says the Wal-Mart deal is a "logical move," but at a price. "While this strategic move will generate higher revenues, we believe margins will decline since sales from retail stores have lower margins" he wrote in a May 24 research note.
Yin has a $28 price target on Dell shares and maintains a hold rating.
And if a big retail deal wasn't enough, Dell announced another move that signals change afoot in Round Rock. It unveiled three consumer systems -- two desktops and a notebook - running the open source Linux operating system. Customers responding to the company's request for suggestions clamored for Linux-friendly machines (see BusinessWeek.com, 2/26/07, "Customers to Dell: Give Us Linux!").
Yin thinks the company may even realize a higher profit margin out of Linux boxes, though the number of units sold will still be small. The company is "trying to listen more to its customers," says Yin. The moves also demonstrate it's also paying heed to another key constituency: shareholders...>> |
