All: this just out on thestreet.com:
Top Stories: Delluva Quarter
By Eric Moskowitz
Staff Reporter
9/25/98 1:32 PM ET
All systems are go!
That is the message out of Dell's (DELL:Nasdaq) eagerly anticipated
analyst meeting in Round Rock, Texas.
Though PC average selling prices continue to come down and DRAM
prices are strengthening this quarter, Dell "is still saying that its estimated
13% sequential growth rate is very doable," says Dan Niles, an analyst with
BancBoston Robertson Stephens. By this reasoning, Dell will record at
least $4.9 billion in revenue in its third quarter ending in November.
Dell's average selling price has declined to $2,410 this July from $2,700
last year, and Niles says Dell's average price should drop a bit more to
around $2,385 during the November quarter.
Dell's top four executives, CEO Michael Dell, CFO Tom Meredith and Vice
Chairmen Kevin Rollins and Mort Tofler, are all attending today's sessions
with analysts, making it a can't-miss event for analysts and money
managers.
So far, the only thing skeptical investors looking for a chink in Dell's
PC-plated armor can point to is that gross margins may have peaked last
quarter. Niles, who has a market perform rating on Dell, believes Dell's
gross margins will narrow slightly from the record levels of the second
quarter. Robbie Stephens doesn't have an underwriting relationship with
Dell.
After Dell's second quarter, when the company reported record gross
margins of 22.7%, "investors may be spoiled," says an analyst who
requested anonymity because he hadn't completed a report on the
conference he'll send to clients. "I don't think that the company will be
able to match these levels for some time." The analyst has a buy rating on
Dell and hasn't participated in any of the company's offerings.
What should keep Dell's growth rates above the industry average, says
Niles, are server and notebook sales, which are taking on increasing
prominence in Dell's business. "Dell's server business is on fire," says Niles,
who said the company said Thursday night that sales at its enterprise sales
unit, which sells lucrative servers and workstations, should more than
double from year-ago levels. And that probably will mark a decline from
the second quarter's 136% sales growth at the unit.
"This growth should offset declining ASPs that Dell has been seeing over
the last year or so," says Niles.
As long as Dell can maintain robust sales growth in the high-margin
enterprise line, it should be able to stay out of the sub-$1,000 market and
avoid a dogfight with price-chopping competitors such as Compaq
(CPQ:NYSE) and Hewlett-Packard (HWP:NYSE).
In terms of worldwide sales, Dell continues to see strength in North
America and Europe, notes Niles, and some growth in Asia/Pacific, "but
[CFO Tom] Meredith said it wasn't as much as Dell would like to see."
Translation: Investors may see a dip in Asia/Pacific growth.
Then again, Dell has proven quite a few doubters wrong before. The
company reports third-quarter earnings the week of Nov. 16.
thestreet.com |
