Dell's Shrinking Revenue May Be Indicative of an Industry-Wide Decline

Yesterday Dell (DELL) reported preliminary revenue of $14.4 billion and preliminary EPS of $0.30:

Dell reported preliminary results for the fourth quarter of fiscal year 2007, with revenue of $14.4 billion, operating income of $801 million, and earnings per share of $0.30. Dell ended the quarter with $12.5 billion in cash and investments.

That revenue number marks a decline of more than 5% on a year/year basis. And with Dell shrinking, and both Hewlett Packard (HPQ) and Ingram Micro (IM) expecting revenue growth to slow, we wouldn’t be surprised if the industry as a whole posted lower revenue in the quarter. It wouldn’t be hard, as Gartner was already forecasting it would be flat. Dell appears to have a smaller slice of what may be a smaller pie. This despite the Windows Vista launch.

Meanwhile, we still have no balance sheet or statement of cash flows due to the ongoing options investigation. Move along, folks. There’s nothing to see here.

DELL 1-yr chart:

Comments

[Malkiel:]

"This despite the Windows Vista launch."

No, understand that the Vista launch is the axe that's beheaded the golden goose. We now see what the real danger was in allowing one company to become the monopoly provider of computer operating systems--the nature of the Vista launch, in which the new complex software is technically too demanding for the upgrade market but Microsoft has the power to shut off access to its nearest competitor, its own earlier software, has thrown the computer market into disarray. Home users and enterprise users are standing out of the market while they evaluate their options, which, being meager, puts everyone on hold. I can speak as a home user of Microsoft products as well as an enterprise user; neither myself nor my employer can make any decisions on hardware and software because the situation is unpromising.

I also don't think convergence between the living room and the computer is a stand-alone trend immune from this problem; buyers still have to decide what the computer part of the package will be, with Vista still the object of deliberation on that purchase.

If something doesn't happen to break the logjam, like a deft move from Microsoft (such as easing up on pulling XP from the market) or a smart marketing blitz by Apple, expect the pc market to wither most of this year. Those who are compelled to buy will be a far smaller market than those who are excited about making a descretionary purchase of something with positive buzz. Computer owners are a passionate bunch and this problem of monopoly-imposed angst is generating a passionate response...

2007 Mar 02 03:51 PM