Dell Inc. (NASDAQ: DELL) reported earnings of $0.17 EPS as a headline, but the clean number is $0.23 EPS on a non-GAAP basis and $12.9 billion in revenues.  Thomson Reuters had estimates pegged at $0.28 for non-GAAP EPS and $13.18 billion in revenues.

Dell had previously noted that it did not expect the commercial refresh and upgrade cycle to come into play until 2010.  Michael Dell noted, “We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter. The same is true with momentum in Dell’s business, specifically in our Large Enterprise and SMB segments. The launch of Windows 7 is being very well received by SMBs and consumers, and we’ll see the benefits of that more fully in our fiscal Q4.”  Unfortunately, that is where the decent to good news stops and is nowhere near good enough for the show-me attitude of investors now.

The company’s guidance at the last earnings date was for seasonal demand increases and sees revenue improving sequentially.  Shipments were flat sequentially, but -5% from a year ago; revenue was a 1% gain sequentially but -15% from last year.  Gross margin was 17.3% and cash flow from operations was $801 million (under closer to $1 billion we were expecting).  While much of the issues might not all be Dell’s fault, this is a huge disappointment compared to what we have seen from other tech giants.

Dell was under pressure partly with the market, but that Bank of America Merrill Lynch downgrade for Intel Corp. (NASDAQ: INTC) and major chip stocks was not enough to offset Microsoft’s (NASDAQ: MSFT) Steve Ballmer’s noting that Windows 7 was the best operating system sales ever this soon into the cycle.  Unfortunately it is just too soon to have any real feel for how the smartphones in China will add to the company.

Dell’s 50-day moving average today was $15.51, and for whatever it is worth tomorrow is options expiration date.  We had recorded an open interest of 85,000 options contracts in the open interest for tomorrow’s NOV09 CALL OPTIONS in the 5 closest strike prices, but that shouldn’t be enough to rock the boat too much.

The only impressive notion we had was that Goldman Sachs picked up coverage earlier this week with a “Buy” rating and a $19.00 target, and it has a history of making the right calls ahead of earnings.  Unfortunately, that looks like a skunk call or at least egg on the face.

Dell shares closed down 1.2% at $15.87 and the 52-week trading range is $7.84 to $17.26.  In the after-hours, shares are trading down close to $14.60. Ouch. Big disappointment here.  And a bad call from Goldman Sachs.

JON C. OGG

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