Gabriel Dubois Merrill Lynch's opinion on Dell has not changed. Their analyst says that their profit may not come in as high as their initial expectations of 5.6 bill but it will be higher than $5.2 bill he said. Thus he maintains his Q4eps of 0.32. His opinion has not changed it is still 2-1-7 , short term accumulate long term buy.
As I read this threads comments about softer PC sales, what we need to remember is that Dell only has 8% of that share. So if Dell is eating other boxmakers' lunch we do not need to worry,
TA
Gene, given that DELL's expectations have been now reduced to only meeting the consensus estimate of $0.31 I decided to redo my DELL analysis for Q4. Here's what I have;
DESKTOPS: Q4 - 1815k units vs 1583k in Q3 - 15.3% sequential growth
PORTABLES: Q4 - 406k units vs 352k in Q3 - 14.7% sequential growth
SERVERS: Q4 - 69184 units vs 64348 in Q3 - 7.5% sequential growth
This data is purchased from IDC who have shown extreme accuracy in their data. The server business is my only concern with 7.5% sequential growth [63%yoy growth] and, if these analysts are correct, may be the reason DELL experiences a lower ASP in this quarter [the servers insufficient growth in relation to the other categories].
Based on this I reduced my ASP from $2400 to $2364 - the same ASP the analysts used. This generates total revenue of $5.416 billionfor Q4.
I'm keeping gross profit at 22.54% - the same as Q3. If margins on desktops were lower in Q4 I believe this was probably offset by the higher margins in portables, servers and data storage.
I increased Operating Expenses by $53 million to $600 million in keeping with the trend from previous quarters.
Income before tax came to $631 million and based on a tax rate of 30% generated Income after tax of $442 million.
Based on average weighted shares of 1.371 million [a 10 million reduction from Q3]EPS comes in at $0.32.
But hold on, this does not include Data Storage. Let's add in the $300 million in incremental Data Storage for Q4 [IDC reported a total incremental external Data Storage volume of $300 million for Q3 and Q4 combined. However, DELL did not start selling external Data Storage until late in Q3 and January 1999 was not included in the $300 million.Therefore, I'm assuming, at worst, $300 million.]
Applying the same net income after tax percentage as the regular PC business we generate an additional $0.018 in eps. This brings the toal EPS to $0.34.
I'm sticking with this number - $0.34 - although we could see an EPS as high as $0.36 for Q4 [based on a different way of adding in the Data Storage to the overall business].
I'm confident that DELL's earnings will now surprise the street and we should see a nice spike up on Wednesday morning.
Regards, Gabriel
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