Dell Down 2% on Downgrade; But the Reasoning Seems Two Months Old

Dell (DELL) is now trading down about 2% pre-market after the PC maker was cut to ‘Underweight’ from a Neutral at JPMorgan.  The shares were down only about 1% earlier.  What is odd here is that there is essentially no new data, and the call of a Neutral was already deemed a poor opinion and the new Underweight is just a poorer rating.  This call may have had merit a couple months ago, but this doesn’t seem worth much today.

The note from J.P.Morgan’s Bill Shope said investors will switch their attention to what may be a difficult 2007 and the company may have margin pressures after loss in market share.  It notes that AMD price concessions may be short-lived and that enterprise operations could be under pressure.  What is really odd is that J.P.Morgan feels Dell will see little benefit from the Vista launch this year and may not see a corporate Vista cycle until 2008 at best.

I believe that Vista is going to matter, and just recently Cramer said he’d even buy Dell for Vista.  This morning’s research call that is adding weakness to the stock seems late and there really seems like nothing new is in the note.  The company didn’t blow earnings like the street was braced for and it feels like the worst is either over or perhaps close to over.  Rollins was one of our 10 CEO’s noted whose stocks would likely rise if they left, but if the stock shows that anything close to the old sub-$20 share prices were truly oversold then he may survive.  Wall Street is ruthless when it comes to management over stock prices, but this call today doesn’t make much sense.  If you wanted to tie it into a weak chip call from Credit Suisse after Motorola’s warning being very loosely related as a culprit that could be passed off.

Mr. Shope may have extra insight that wasn’t available to us in the last day ahead of Dell’s keynote address at CES and maybe he’ll be right and prove me wrong, but all of this data seemed like it should have already been factored in earlier last quarter.  Perhaps Shope’s research note was meant to be dated November 5, 2006 instead of January 5, 2007.

Jon C. Ogg
January 5, 2006