Bob,
1) Why do ASP's matter ?
If ASP's fall, then revenue growth will be lower than it could have been if DELL could have avoided the problem.
Net Net, Profits come from revenue and the slower it grows, the harder it is to grow EPS.
When you are expecting no ASP decline, which is what DELL said 2 months ago and now you find that it is happenning, I don't care what your come back is, Revenue growth will be lighter than we thought it would be 2 months ago. This is a negative for the Stock, not DELL the company but the stock.
2) CPQ says they are making $$ is Sub-Z, ( this is the less than $1200 market, at least that is the way it seems to be refered to)
DELL says they are not going to go there.
I was under the impression that DELL is not going there because they don't see any profit there. This may be confusion on my part, If they can make money there, then why not go for that unit growth and the $$ also. The reason, it hurts their model. Pluss CPQ's with its greater size is better suited to large quantity low priced machines.
DELL build to order, while it could be profitable in the lower priced segment, is not suited to the lower priced segment, Lets face it, Building each machine individualy on an as order recieved is not the cheepest way to mass produce an item.
The point here is that CPQ is doing better than DELL wants to believe they are.
Last, Non of this really relates to DELL's stock price other than the fact that CPQ is growing units in an area that DELL does not participate and making $$ there.
3)This is very important, and If you don't believe me, after DELL misses again, in time you will come to understand.
3) Making expectations and exceeding them is the most important thing for a growth stock that is extended.
Expectations are what the analysts have told their money running clients what they expect. Last Q they said they expected DELL to exceed their estimates by 3-5 cents, they beet their numbers by 2 cents. The result if this is a disapointment. No "ifs" "ands" or "buts" DELL did not have the report that many expected. (Though I did get the number right:)
Now I am not sure what is driving the stock now, The move to a big cap stock that is going up, or buying in anticapation of a blow out quarter. The stock is starting to struggle now. Watching the level 2 quote, large chunks keep showing up on the offer side. Never seen this happen before, even in the last 18% correction.
Some one is getting out while the getting is still good. But if the number is good, he may want back in. you never know.
IMO, the stock is showing all of the signs that the stocks great run is coming to a close.
Yes I have thought this before and been wrong.
We will have a better idea of DELL's direction after the EPS report.
I expect DELL to be below the whisper number and to announce another stock split.
I also expect the stock to react negatively to this report.
Jim |
