Can Dell Keep Up The Pace?
(11/11/98 4:25 p.m. ET)
By Sergio G. Non, TechWeb
When Dell reports its third quarter earnings on
Thursday, Wall Street wants to hear about more than
just the bottom line.
Among the 28 analysts surveyed by First Call, estimates
for Dell's third quarter range between 25 cents and 29
cents a share. The company earned 18 cents a share in
the third quarter of its last fiscal year.
But Wall Street now wants to hear that Dell, the world's
largest direct seller of PCs, can maintain its growth rate.
Not everyone is certain it can do that in the coming
quarters: A research note released this week by Piper
Jaffray said Dell's third quarter growth rate in desktops
was just 7.6 percent compared to the previous quarter,
slower than the overall market's 9.6 percent growth.
On the other hand, Dell's rivals -- Compaq, IBM,
Hewlett-Packard, and Gateway -- easily outpaced the
market, said Piper Jaffray analyst Ashok Kumar.
Things won't get any easier for Dell, Kumar said. "The
company cannot expect to maintain its historical growth
by expanding customer share," Kumar said. "It would
need to come from market share gains -- a difficult
proposition in today's competitive environment."
Rivals are also turning to direct sales. Gateway, the
second-largest direct PC seller, has done well with its
Your :)Ware program. On Wednesday, Compaq
announced a plan to directly sell its computers to small
and medium-sized businesses. "The market they're
targeting is big," said Jimmy Johnson, analyst with A.G.
Edwards. "If Compaq can be competitive on price, that
would be an impact on Dell."
Despite his warning that the stock may be overvalued,
Kumar maintains a strong buy rating on Dell, and other
analysts say there's little they don't already know. "We
expect them to come in line with expectations," Johnson
said. "We're looking at 50 percent revenue growth."
Although growth in the desktop market will become
more difficult for Dell, Johnson said, the company is
branching out into other areas, such as servers and
storage. To keep up its momentum, Dell has to keep
hiring high-quality employees, Johnson said.
"That continues to be their greatest challenge," he said.
"You want to have good people in there and be able to
ramp them up quickly." |
