For Dell, More Pain Before Any Gain

 
 
By Scott Ferguson  |  Posted 2007-06-01 Email Print this article Print
 
 
 
 
 
 
 

News Analysis: Despite a better-than-expected quarterly return, Dell is still facing the prospects of more changes, including job cuts and the ongoing SEC probe.

The good news coming from Dells release of its quarterly numbers May 31 is that the company managed to beat Wall Street expectations. For its financial quarter that ended April 30, the Round Rock, Texas, company posted net income of $759 million, or 34 cents per share. While those numbers were down from last years results—$762 million, or 33 cents a share—the quarter was certainly better than the 22 percent drop that was Wall Streets consensus.
Even with a good financial quarter under its belt, analysts believe that Dells management team, with Michael Dell at the helm, is still a long way from achieving the turnaround the company needs.
Richard Shim, an analyst with IDC, pointed out that Dells decision to cut 10 percent of its 82,000-strong work force is a sign that the company is still looking for a better balance within the company in order to reach out to more consumers while keeping its core commercial customers. "Wall Street does like to see a business streamline when its struggling, and the company did talk about this when that memo came out about a month ago," said Shim, referring to a memo Michael Dell wrote to employees, which found its way into reporters hands. Click here to read more about the changes at Dell.
"On the consumer side, they [Dell] have talked a lot about how they could have responded faster [to the shift toward consumer PCs], but since the company has gotten bigger, they were not able to respond quickly enough," Shim said. "These cuts mean that Dell is trying to go back to leaner way." Dells other problem, an ongoing investigation by the U.S. Securities and Exchange Commission that has led to an internal review of its accounting practices, has also lingered during the past several months. "Although this process has taken us longer than we would have liked, it is important to commit the time and resources required to ensure a thorough and comprehensive review and resolution of all identified issues and the implementation of appropriate remedial measures," Thomas Luce, chairman of Dells Audit Committee, said in a statement released Thursday. Since returning to the CEOs position in January, Michael Dell has started to institute a number of changes that will make the company more competitive with the likes of Hewlett-Packard, which has gained market share in the PC space at Dells expense. On the technology side, Dell has tried to offer more innovative products, such as business notebooks with SSDs (solid state drives), and more services for enterprise customers. For consumers and even some small businesses, the company has started to offer factory-installed Ubuntu Linux and will start selling some of its desktops at Wal-Mart— a blow to the direct-sales model that helped it so well in the past. Shim said that in the coming months, he would look at the net revenue the company pulls in from both its desktop and notebook sales, as well as services division, to determine how the company is rebounding from its slump. In the last quarter, Dells desktop sales represented 33 percent of its total net revenue, while notebooks accounted for 27 percent. Services represented 9 percent. In a statement released with its quarterly numbers Thursday, Dell claimed that it was helped along by customers buying the companys pricier PCs and lower component costs. While that might be good for the bottom line, some analysts believe that the number of PCs Dell shipped fell during the quarter. A report by analysts at Technology Business Research found that Dells desktop shipments—once the companys greatest strength —fell, although its notebook shipments increased. Click here to read more about Dell and its desktop line. "We believe that its notebook shipments increased by approximately 5 [percent] year-to-year," according to the TBR report. "However, the increase in notebook units was not enough to offset by high-double-digit decline in desktop shipments, based on our estimates." While the TBR report found that Dell still has a long way to go, it pointed to some steps the company has taken in the past five months to improve. "To its credit, the company appears to have embraced the task at hand," according to TBR analysts. "Dell is moving ahead on several fronts, including enacting layoffs to lower its costs and beginning efforts to increase its unit shipments by tapping retailers and distributors." Shim, the IDC analyst, believes Dell needs to develop and then articulate how its strategies for technological innovations, consumer focus and expansion of its enterprise services all fit into one overarching plan to help the company. "What they need to do is show us the overall strategy and show us how all these independent moves fit together," Shim said. Check out eWEEK.coms for the latest news in desktop and notebook computing.
 
 
 
 
 
 
 
 
 
 
 

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