Dumping Dell on Q4 is a fool thing to do-ZDII (ZDNet)
Nick:
Thanks nick,allow me to post the article.Here is one of the best lines from the article:-
".... Who would bet against a company where sales growth of 38 percent is a bad thing? Maybe that 1 percent sales growth at Hewlett-Packard Co. (NYSE: HWP) looks better."..
THE DAY AHEAD:
Dumping Dell on 4Q sales a foolish move
By Larry Dignan TDAIN
February 17, 1999 7:26am
ZDII
Every year, one leading tech company sees its stock nearly halved on what could be seen as an overreaction. Now it's Dell Computer Corp.'s turn as Wall Street hits the panic button over lower-than-expected sales without thinking about the long-term prospects.
Dell: Bargain or bomb?
This once-a-year overreaction doesn't apply to the volatile Internet stocks, but those blue chips that actually make money -- Intel Corp. (Nasdaq: INTC, chart), Cisco Systems Inc. (Nasdaq: CSCO, chart) and now Dell (Nasdaq: DELL).
Cisco shares were in the dumps in early October. Intel hit its trough in late August. And now Dell (chart) will take its lumps.
Run away from the herd -- the long-term prospects still look great for Dell.
Wall Street -- and to some extent Dell -- got ahead of itself and is now panicking because Dell merely met Wall Street estimates. The idea that Dell should be dumped is silly. Oh no, Dell only made $425 million this quarter. But sales of only $5.17 billion confirmed Wall Street's worst fears and came in on the soft side. Analysts had lowered revenue projections from about $5.5 billion to $5.2 billion.
Watching the overanalysis of Dell's so-called problems will have you thinking Dell is going out of business. Use some perspective here. Looking at the long-term prospects, Dell can only look better after it gets pummeled.
One quarter doesn't make a trend. Given Dell's lofty valuation, a haircut is healthy.
If you factor out Dell's sales hiccup, it's hard to find much wrong with Dell's quarter. The company announced its 7th stock split in seven years, said it sells $14 million a day on its Web site, reported sales from Europe jumped 40 percent from a year ago and Asia-Pacific revenue jumped 30 percent, and had only six days of inventory at the end of the quarter. You could argue that Europe sales growth slipped from 68 percent in the third quarter, but isn't that being a bit nit-picky.
Dell still grew faster than any of its competitors.
OK, Dell admittedly "missed a beat" with its sales, but it's still winning the enterprise accounts that will fuel growth.
"We were not as aggressive as we should have been," said Thomas Meredith, CFO, referring to landing enterprise accounts with lower prices. "If we were more aggressive we could have picked off a couple accounts to gain a couple $100 million in revenue and another cent of EPS. We missed a beat."
Luckily there's a bright side.
"We are leaving the fourth quarter with the strongest pipeline (of (new business) in company history," said Meredith.
As Dell moves toward more enterprise sales, it will take a longer time to show results on top line.
CEO Michael Dell said it takes 60 to 90 days from the time of the win to the time it becomes revenue. Chances are pretty good Dell will get its groove back.
Dell's biggest crime is that it has impressed Wall Street too much. So now spoiled investors are going to dump a company that has made them fat and happy for years. Who would bet against a company where sales growth of 38 percent is a bad thing? Maybe that 1 percent sales growth at Hewlett-Packard Co. (NYSE: HWP) looks better.
Dell is facing fierce competition from International Business Machines Corp. (NYSE: IBM) in the enterprise market, but has plenty of room to grow in regions such as China. Dell is also rapidly picking up share in various markets.
For the quarter, 63 percent of sales came from desktops with higher-margin enterprise products such as workstations and servers accounting for 14 percent of sales, with portables making up 23 percent of revenue. The percentage of high-margin enterprise products and portables gained compared to a year ago.
Dell also may tackle tackle the sub-$1,000 PC market when it has the products and support to take market share and remain profitable. Dell said the company would address the low-cost PC market at its analyst meeting in April.
There's nothing here for a long-term investor to panic about. In fact, Dell's dip may be an opportunity. Also keep in mind that Dell shares have fallen three out of the last four quarters following earnings so this pullback will hardly be anything new.
It's business as usual.
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