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Dell (NASDAQ:DELL) is the dog analysts love most.

Bret Jensen calls it cheap “at these levels." Jim Van Meerten notes it trades “at a discount." Ron Sommer calls it “undervalued."

But there are good reasons for this.

Dell, like most tech companies, had one trick. Its trick was mass customization. By keeping inventory low, by making PCs to order, Dell gained a cost advantage over Asian rivals that shipped PCs over by the container-load, then sold them through distribution channels.

Stable PC technology killed this advantage. Dell has since sought to go deeper into China than rivals, taking advantage of even-lower labor costs than on the coast, and it has moved into storage systems against HP (NYSE:HPQ) and EMC (NYSE:EMC), and it has sought customization revenues by buying Perot Systems.

All to no avail. Dell trades at a little more than half its price of 2007. It has a P/E of just over 10, pays no dividend, and while it has a cash horde of over $14 billion, it also has a tarnished brand name, known to the digirati for poor quality, a has-been. The technology equivalent of Phil Collins.

Personally I like Phil Collins, and I like Michael Dell. But just as a musician is only as good as his/her last album, and is subject to changing tastes, technology companies must transform themselves or be buried by their own mistakes.

Dell is putting its money on cloud computing. It reportedly plans to invest $1 billion in the space.

But in terms of hardware, which is Dell's business, clouds don't increase demand. They reduce it. Virtualizing servers means you need fewer of them. Transferring work to a cloud means lower enterprise computing demand, not just for servers but for clients, which need to do less of the work. As clouds gain standards they become commoditized.

If Dell's phones and tablets were innovative we might have a different story, but they are not. They are fairly standard Android stuff, which makes them subject to litigation and no better than what Chinese brands can do on their own.

Dell has no leadership in its product line. It has little to differentiate itself. Its strategy is behind those of rivals on every front. Dell fans need to remember the story of another Texas tech company, Compaq, which was circling the drain when HP bought it and nearly destroyed itself in the process.

And in this case, there's no white knight on the horizon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Why You Don't Want Dell