Dell's Demise: Stay Away (DELL)

| About: Dell Inc. (DELL)
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Value investors will have you believe that Dell Inc. (DELL) is a buy now. But pay no attention to them because there are four factors that should make you stay away from Dell:

  1. Dell’s YOY revenue has slowed over the past eight quarters. Take a look at the web site of retailer Best Buy (NYSE:BBY) and you’ll see that the problem is falling PC prices. Prices are now plunging so fast that Dell must grow its sales volume at a breakneck rate just to keep revenues stable. If Dell is running to stand still today, tomorrow things could get even worse. The research group Gartner Group (NYSE:IT) reckons PC prices could fall by another 13% this year.
  2. Dell is losing its competitive edge. For a long time, its direct model gave Dell such a cost advantage that it could continually squeeze rivals by cutting prices and taking market share. But the likes of Hewlett Packard (NYSE:HPQ), Lenovo and Toshiba haven’t stood still. They have narrowed the cost differential through improved manufacturing and moves such as using lower cost AMD (NASDAQ:AMD) chips rather than those from Intel (NASDAQ:INTC).
  3. Dell's gross margins are down to 17.8% from 20% a few years back. Operating margins have slipped from 8.6% to about 7%. Price competition could drive margins even lower.
  4. Dell’s inventories and receivables have grown faster than sales since the start of 2003. That’s worrying, especially considering that Dell prides itself on building computers to order. Rising receivables and inventory are signs that problems are being stored-up for the future.

So for now, at least, you should stay away from Dell and wait for things to improve.