Dell: Pointing Fingers, or Pointing Up?

Dell sucks. I listened to Dell and here’s the problem with Dell, they literally said this immediately after this horrible number came out. They said, our numbers are down but you know? Hewlett-Packard was bad too. Any time a company says, yeah we stink but they stink too, you want to steer away. I’ve been directing people absolutely out of Dell. If you get higher Dell numbers, I say unequivocally to sell the Dell you already own and don’t buy any new Dell.

These were the harsh words of one of the traders on CNBC’s Fast Money. On that show, as with some other CNBC broadcasts, the time-frame behind some of their logic is very short. And, perhaps we can agree with him on the fact that Dell (DELL) may be in for a few more rough quarters in terms of PC sales, which account for 60% of Dell’s revenue.

However, over the long term it seems clear to us that Dell is about as Undervalued as any in the market. Just as we were anticipating, earnings came in at the low end of analyst expectations, and full year 2008 earnings tallied $1.24 per share. (See earnings call transcript.) We speculated that the stock would be compelling even if earnings came in at $1.23 the lowest of analyst opinions earlier this week in Dell: Undeniable Value. So as of the close, Dell is trading at 6.6 times earnings, which is cheap even in this market. Not to mention, the fact that Dell has substantial cash on its balance sheet of nearly $4 per share.

There is no doubt that Dell is struggling right now, but it is companies that are struggling and out of favor with the market that can present the most opportunity for a savvy investor. Dell is continuing to cut costs and reduce headcount, which is down more than 7% from last year. Additionally, the company plans to find an additional $1 billion in cost savings this coming year. These cost savings enabled the company to generate $729 million in cash flow in the last quarter and $2 billion in the year. In this environment “cash is king,” which is part of the reason that this company will be one of the healthy survivors when things do rebound, and it just demonstrates the different time horizons between traders (Fast Money) and investors. We could not have said it better than the company’s founder Michael Dell,

Within our business, we’re being very disciplined in managing costs, generating profitability and cash flow, and investing in ways that separate Dell from others today and when the economy inevitably improves.

Original post

Comments

[Moon Kil Woong:]

Dell has always already been a low cost manufacturer trying to cut out the middleman in the production chain. Thus any cutting will be likely cutting bone (not good). I tend to agree with CNBC that their blaming their ills on the market are unfounded.

I am adverse to their plight because I have seen many instances in the PC industry similar to Dells. When a big box maker starts bleeding and looses their brand image of high quality they end up in the trash can of history.

Before there was always someone to buy them out as they go down. Now there is no one left. If you can't sell your product as more dependable and better quality than the whit box manufacturers, get out fast.

Dell is failing in the quality control and customer service area. They have been for years now. It's time to pay the piper. I personally think their real problems have nothing to do with their financial status or even the downturn. These just exacerbate them and brings them to the forefront.

Perhaps it is good for them. The sooner they realize the problems the sooner they can try to change.

Feb 27 02:03 AM

[Klaim:]

Dell has systematically destroyed all good will they ever had with poor customer service, poor tech support, and substandard products. As a consumer, I will never purchase another product from Dell--this from a 7x dell owner. I've had a enough.

Feb 27 08:15 AM

[Hayweed:]

Didn't Apple just announce their best earnings in company history last quarter and they only sell toys and high priced gear to Apple fanboys. Guess selling generic computers as cheap as possible is a better strategy. Dell appears to be winning the race to the bottom.

Feb 27 08:21 AM

[rajeev bajpai:]

Dell in any way seems to me in a better position then HP ( minus EDS) as they do not have the baggage of the printers or supplies. They are in the business of primary product (which is client - PC or notebook or netbook) and hence their results would reflect the true state and not camouflaged by the derived demand products ( where bulk of profits for HP comes). for years we have been talking of paper less office - or whatever the fact that the unbridled growth of PCs led to a growth of Printers and alike products. Now the times have changed, consumers doesn't want to take a printout, internet is all pervasive. smartphones/netbooks/ sms email, internet messenger is getting exploited to the maximum....and then dell challanged the model of IT distribution - at least thats a great innovation, which everyone agreed - cut the middleman. and hence i feel dell is the best company to beat the downturn /recession and within the ambit of the business they will do better than HP. ofcourse the only other company which can change or benefit from the downturn and change is ACER. and in my opinion one of them will be at the top in another two years. HP might remain a great company like IBM but with declining stakes in hardware.

Feb 27 12:05 PM

[rajeev bajpai:]

Dell has further upped its strategy by signing up distribution agreements with Ingram Micro and Techdata. This should further enhance their penetration in the much touted SMB segment. A good strategic move which shall put more pressure on the likes of HP and Lenovo


On Feb 27 12:05 PM rajeev bajpai wrote:

> Dell in any way seems to me in a better position then HP ( minus
> EDS) as they do not have the baggage of the printers or supplies.
> They are in the business of primary product (which is client - PC
> or notebook or netbook) and hence their results would reflect the
> true state and not camouflaged by the derived demand products ( where
> bulk of profits for HP comes). for years we have been talking of
> paper less office - or whatever the fact that the unbridled growth
> of PCs led to a growth of Printers and alike products. Now the times
> have changed, consumers doesn't want to take a printout, internet
> is all pervasive. smartphones/netbooks/ sms email, internet messenger
> is getting exploited to the maximum....and then dell challanged the
> model of IT distribution - at least thats a great innovation, which
> everyone agreed - cut the middleman. and hence i feel dell is the
> best company to beat the downturn /recession and within the ambit
> of the business they will do better than HP. ofcourse the only other
> company which can change or benefit from the downturn and change
> is ACER. and in my opinion one of them will be at the top in another
> two years. HP might remain a great company like IBM but with declining
> stakes in hardware.

Mar 25 12:56 PM