Is There A Positive Case At Dell? (DELL)

Dell Inc. (NASDAQ: DELL) has just posted very disappointing earnings for its fiscal fourth quarter, as we expected.  The PC-giant reported $0.18 EPS vs. $0.26 estimates and a 16% drop in revenue of $13.4 billion vs. $14.18 billion estimates.  While there is not formal guidance, its  outlook is challenging at best.

Dell had 17.2% margins, lower than before by 19% sequentially and by 23% annually.  We saw some estimates north of 18% on margins.

There is no specific guidance other than remarks about uncertain and challenging times ahead. The company noted further that IT spending is being deferred until there is better economic visibility.  The company is also increasing its cost cutting expectations from $3 billion to $4 billion.

We are not that surprised here.  If you wanted to take the altruistic contrarian approach, none of this should be a surprise.  Shares closed down 1.8% at $8.21, and they are down around $7.95 to $8.00 in the after-hours session.

By the way, when you see all of the analyst reports tomorrow and over the weekend that have said how this was much worse than expected and that the disappointments are greater than they should have been, please remember that we told you that this should have been known.  Some people just aren’t doing their homework.

Here is what we said in our weekly subscriber letter for “10 Stocks Under $10” over the weekend:

Dell (NASDAQ: DELL) is on the earnings deck this week. On Thursday, February 26, we will get to here just how bad the PC business really is. We have already seen this from H-P and Lenovo and Dell doesn’t really have the retail presence at stores that allow it to fend off this huge push toward netbooks and even in the new lower-end notebooks. The good news is that Dell should still make money. The bad news is that the readings should prove that selling PC’s is no different than selling toasters. The company needs a transformation, but the push into smartphones may be a dangerous one. Do you recall how that Dell MP3 player push went? H-P bought EDS for a reason. That was the only highlight for the last quarter. Michael Dell could sound like he has been crying or like the world is just conspiring against him this Thursday. If the market does not really recover, we don’t really see any reason that the 52-week and multi-year low of $7.84/85 that was put in just on Friday can’t be tested and/or violated all over. Don’t short it, but we see no reason to try to fight it here yet. What seems more logical here… The Patient Play: You may get to buy Dell at the same price after the news event, or maybe have to pay up a little more because it wasn’t as bad as it could have been, or the stock busts to new lows as no end of woes is in site? The Damn the Torpedoes, Full Speed Ahead: The company says that things are not as tough as they seem and that they blow away earnings and suddenly it is a $12.00 stock. Sorry, but we are sticking with the notion of patience.

Jon C. Ogg
February 26, 2009