Dell burnt by fire sale, shares slide

Posted:
in General Discussion edited January 2014
Shares of Apple Computer rival Dell Inc. slid over 5 percent on Tuesday morning after the company warned investors that earnings for its first fiscal quarter will fall below guidance as a result of recent price cuts aimed at maintaining its lead as the world's leading manufacturer of personal computers.



In the profit warning to investors after the close of the market on Monday, Dell said it will post earnings per share of approximately 33 cents for its fiscal 2007 first quarter and expects revenue of approximately $14.2 billion versus its original guidance of $14.2 to $14.6 billion and earnings per share of 36 to 38 cents, including an estimated three cents of stock-based compensation.



The personal computer maker attributed the shortfall to price cuts initiated in the second half of the quarter, which the company hopes will accelerate revenue growth in the future.



"During Q1 we continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments," said Kevin Rollins, Dell's Chief Executive Officer. "We are committed to delivering industry leading value to our customers, which ultimately results in industry leading growth for the company."



While Dell's aggressive pricing in the quarter undoubtedly played a role in weaker than expected revenues and earnings, Ben Reitzes, an analyst at UBS Investment Research, said he believe there is much more to the story than just pricing decisions.



"We believe Dell continues to suffer from a number of secular issues that is preventing the company from realizing the success it did during the 2001 - 2004 time frame, a period we refer to as the 'Dell Era'," the analyst told his clients on Tuesday morning. "In addition to the negative pricing affects noted by Dell, we continue to believe there are five main issues that differentiate the current environment from the 'Dell Era' and believe that in such a different environment we may not see the same benefits of a drastic reset for several reasons."



Reitzes said these issues include less available market share to be gained by the company's direct model, a stronger array of competitors including HP and Lenovo, more modest component price reductions, and a healthier overall personal computer market.



He also believes the market has moved away from Dell's strengths and more towards emerging and consumer markets.



"HP may have an edge right now with channel relationships and AMD that lower prices simply cannot overcome," the analyst told clients. "In the enterprise, the market growth has moved toward blades or servers using AMD?s Opteron processor. Simply put, HP and even IBM may be better suited to address these growth areas, especially near-term."



Dell will formally announce its financial results for fiscal 2007 first quarter on May 18.
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Comments

  • Reply 1 of 47
    drowdrow Posts: 121member
    time to sell the company and retu... oh, you know the punchline.
  • Reply 2 of 47
    amac4meamac4me Posts: 282member
    No OS X for you Mr. Dell



    Apple will not license OS X (at least that's my hope)



  • Reply 3 of 47
    melgrossmelgross Posts: 31,475member
    Apple's shares have slipped even without bad news. Look at yesterday, they rise to almost 74, but slip back to the Friday close. And that was with very good news.



    Today, so far, they are down over a dollar, even though Fox and NBC have made big deals. The Fox deal considered to be very important because of Murdock's owning his own services.
  • Reply 4 of 47
    maccentricmaccentric Posts: 263member
    Dell's market cap is once again below Apple's.



    Michael Dell, Founder of the beleagured computer manufacturer said "Who knew that innovation and actually advancing technology would win out over simply assembling parts."
  • Reply 5 of 47
    irelandireland Posts: 17,547member
    Quote:

    Originally posted by melgross

    Apple's shares have slipped even without bad news. Look at yesterday, they rise to almost 74, but slip back to the Friday close. And that was with very good news.



    Today, so far, they are down over a dollar, even though Fox and NBC have made big deals. The Fox deal considered to be very important because of Murdock's owning his own services.




    Shares didn't come near $74 yesterday. ?÷¿
  • Reply 6 of 47
    melgrossmelgross Posts: 31,475member
    Quote:

    Originally posted by Ireland

    Shares didn't come near $74 yesterday. ?÷¿



    An inter-daily high of about 73.80.



    http://www.marketwatch.com/tools/quo...mo&siteid=mktw
  • Reply 7 of 47
    irelandireland Posts: 17,547member
    Quote:

    Originally posted by melgross

    An inter-daily high of about 73.80.



    http://www.marketwatch.com/tools/quo...mo&siteid=mktw




    My apologies I didn't know about that. I guess the went back down so quickly cause a few people wanted to make a quick buck.
  • Reply 8 of 47
    backtomacbacktomac Posts: 4,579member
    Crap, Dell is dragging intel with them into the gutter.
  • Reply 9 of 47
    melgrossmelgross Posts: 31,475member
    Quote:

    Originally posted by backtomac

    Crap, Dell is dragging intel with them into the gutter.



    Yeah. A lot of that is irrational. Very little of Dell's problems have to do with AMD vs Intel, even though some like to believe that.



    Others have come closer to Dells costs. While a small bit of that might come from the cheaper AMD chips, most is just because other companies also offer more compelling designs, along with the pricing.
  • Reply 10 of 47
    backtomacbacktomac Posts: 4,579member
    Quote:

    Originally posted by melgross

    Yeah. A lot of that is irrational. Very little of Dell's problems have to do with AMD vs Intel, even though some like to believe that.



    Others have come closer to Dells costs. While a small bit of that might come from the cheaper AMD chips, most is just because other companies also offer more compelling designs, along with the pricing.




    I'm still holding firm on my belief that Intel's stock will perform well over the next 2-3 years, so this one day move really is meaningless. However the recent rise was kinda nice.
  • Reply 11 of 47
    crees!crees! Posts: 501member
    Quote:

    "We are committed to delivering industry leading value to our customers, which ultimately results in industry leading growth for the company."



    Leading value in cost but not leading in quality. Quailty is in a totally different ballpark and they're not part of that club.
  • Reply 12 of 47
    melgrossmelgross Posts: 31,475member
    Quote:

    Originally posted by backtomac

    I'm still holding firm on my belief that Intel's stock will perform well over the next 2-3 years, so this one day move really is meaningless. However the recent rise was kinda nice.



    I agree with that. I really don't see AMD, over the long run, continuing their slight performance and power consumption lead. Intel had lost their way with Netburst. But that bubble burst with the 90nm process technology transfer. Now that they are back on track, AMD no longer has a design advantage, except fot the on die mem controller. It's questionable as to whether that continues to have the same advantage it did, and there are statements by Intel that they will likely add them as well by late 2007, or 2008.
  • Reply 13 of 47
    melgrossmelgross Posts: 31,475member
    Quote:

    Originally posted by crees!

    Leading value in cost but not leading in quality. Quailty is in a totally different ballpark and they're not part of that club.



    Leading in value based on initial purchase cost has rarely been a good indicator of ownership cost, which is what really matters. But, a lot of people, as well as companies don't always understand that. At least, not at first.
  • Reply 14 of 47
    bigmigbigmig Posts: 77member
    Quote:

    Originally posted by melgross

    I agree with that. I really don't see AMD, over the long run, continuing their slight performance and power consumption lead. Intel had lost their way with Netburst. But that bubble burst with the 90nm process technology transfer. Now that they are back on track, AMD no longer has a design advantage, except fot the on die mem controller. It's questionable as to whether that continues to have the same advantage it did, and there are statements by Intel that they will likely add them as well by late 2007, or 2008.



    Yeah, I just don't see how AMD is going to perform well in the long term. Their net income for FY 2005 was only $40.3 million on $5.8 billion of revenue, i.e. they were basically breaking even. And this past year was pretty much the BEST CASE scenario for them - Intel's bad missteps with the P4 Prescott allowed AMD to really milk the high-margin "enthusiast" and server markets with high prices for the Athlon 64 and Opteron.



    But fast forward to 2006-07, and by all indications Conroe, etc. will dominate the Athlon in the desktop space, forcing AMD to reduce its prices by 50% or more (or else sales will tank). Meanwhile, the mobile market continues to become increasingly important, and AMD has nothing on the horizon that can compete with Yonah, Merom, etc. Basically AMD will be forced back into its traditional role of providing dirt cheap chips to the lower half of the desktop market. They might be able to protect their server market share for another year or two by milking the scalability of IMC + HT, but I doubt even that will provide sufficient revenue to make up for all the Athlon price cutting they will have to engage in. Ultimately, they'll have to start cutting back on expenses, particularly R&D, and it's pretty clear where that leads....
  • Reply 15 of 47
    jeffdmjeffdm Posts: 12,946member
    Quote:

    Originally posted by crees!

    Leading value in cost but not leading in quality. Quailty is in a totally different ballpark and they're not part of that club.



    Given the number of notebook logic board recalls, notebook battery issues, the power supply issues with iMac G5, and the reliability issue with the PowerMac G5 single 1.8, the nano scratching issue, I'd say that Apple isn't necessarily where it should be in that regard either. What does help is that very often Apple is quick to replace the troubled equipment in my circumstances, I think it is better to not have the issue in the first place.
  • Reply 16 of 47
    jeffdmjeffdm Posts: 12,946member
    Quote:

    Originally posted by amac4me

    No OS X for you Mr. Dell



    Apple will not license OS X (at least that's my hope)




    I don't see why it would hurt you if they did. I would gladly pay $200 per computer to convert my Xeons to OS X, and even though they are technically not worth even that much as it is.



    I don't expect them to do this though. I'd hate to have the support calls when some yokel with a VIA chipset complains that the computer isn't reliable and blames it on Apple.
  • Reply 17 of 47
    ipeonipeon Posts: 1,122member
    Quote:

    Originally posted by AppleInsider

    "During Q1 we continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments," said Kevin Rollins, Dell's Chief Executive Officer.







    In order words, "We aren't handling the problem and we are clueless as to what to do about it. We think that by continuing to invest in our support infrastructure, whatever that is, is what we should do. We are also making an investment in product quality, I don't know if this means we are actually improving our product quality but that's irrelevant. We are also accelerating pricing adjustments, I'm not sure how this works or what it means, but there you go. Thank you very much and have a nice day."



  • Reply 18 of 47
    tednditedndi Posts: 1,921member
    "We believe Dell continues to suffer from a number of secular issues that is preventing the company from realizing the success it did during the 2001 - 2004 time frame, a period we refer to as the 'Dell Era',"



    the analyst told his clients on Tuesday morning. "In addition to the negative pricing affects noted by Dell, we continue to believe there are five main issues that differentiate the current environment from the 'Dell Era' and believe that in such a different environment we may not see the same benefits of a drastic reset for several reasons."





    Reason 1-5 Mac OS X 10.0-10.5





    Apple era begins 2006-3006





  • Reply 19 of 47
    jeffdmjeffdm Posts: 12,946member
    Quote:

    Originally posted by TednDi



    the analyst told his clients on Tuesday morning. "In addition to the negative pricing affects noted by Dell, we continue to believe there are five main issues that differentiate the current environment from the 'Dell Era' and believe that in such a different environment we may not see the same benefits of a drastic reset for several reasons."



    Reason 1-5 Mac OS X 10.0-10.5



    Apple era begins 2006-3006







    A thousand years? Are you planning on a fourth reich?



    You might have a case when Apple's market share hits double digits. But during the years of 10.0-10.4, Apple had roughly a tenth of Dell's market share. Even then, most of the people that would buy Dell probably would never consider an Apple, and the reverse is true, so it could be argued that they don't even compete in the same market.
  • Reply 20 of 47
    melgrossmelgross Posts: 31,475member
    Continuing their price adjustments meant to continue to offer massive discounts. But, then again, that's what has gotten them into the low margin situation they are in now. It doesn't seem to be helping their marketshare much either.
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