Like the last paragraph....
FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Dell Sales Called Light
PC juggernaut Dell Computer (Nasdaq: DELL) lost $8 7/8 to $93 this morning after both Salomon Smith Barney and BancBoston Robertson Stephens said in research notes that they expect the company to come in a little light on revenues for the fourth quarter. According to Bloomberg, BBRS analyst Dan Niles expects the company's sales to come in about $300 million light of his quarterly estimate of $5.5 billion, due to "intensified [competitive pressure], especially in the corporate market." On that news, other PC vendors were pared as well, with Gateway Inc. (NYSE: GTW) off $3 1/4 at $72 3/4, Micron Electronics (Nasdaq: MUEI) down $1 1/16 at $13 7/8, IBM (NYSE: IBM) down $5 1/2 to $173, and Compaq (NYSE: CPQ) $1 3/16 lower at $43 5/8. Hewlett Packard (NYSE: HWP) bucked the trend, gaining $1 13/16 to $77 1/16.
The thinking here goes that Dell competitor Compaq took some market share with stepped up marketing initiatives, including a better direct sales effort. If the competition was most intense in the corporate market, investors fear that that will impact the company's sales of higher-end units such as laptops and servers. The anecdotal evidence points to better execution by Compaq in PCs, but not in the higher-end products. This quarter's sell-out of Compaq products from the distribution channel was excellent, increasing 43% year-over-year. But some of that was done with promotional incentives and could also be due to smaller distributors clearing out inventories to generate cash. The success of Compaq's efforts in direct sales, build to order, and configure to order will have to be assessed over a number of quarters, though certainly investors like to be out in front of trends.
Salomon Smith Barney and BBRS certainly want to get in front of that curve, but investors don't really have to wait that long to hear it straight from Dell itself. The Round Rock, Texas, company will be holding its fourth quarter conference call on Tuesday afternoon. Both analysts and CS First Boston said they believe Dell can attain the consensus earnings estimate of $0.31 per share for the quarter, which is, as they say, "the bottom line." Earnings and cash flow for this quarter really aren't the issue, as investors have their ears to the ground attempting to detect a tectonic shift in the PC landscape.
If Dell is indeed ceding a little business over the short term in desktops but gaining share in higher-priced servers and mobile computers, that's actually good news. Knowing that the company is acting in a rational manner on prices and hitting its strategic goals of improving the sales mix is exactly what one would want to hear. For smaller companies making their moves into the corporate market, especially Micron, that might not be such good news, but Micron has some very strong sauce that it's brewing up to gain corporate sales. As investors await the Dell call, they shouldn't let their imaginations run too wild here. |
