While there is growing sentiment that the company has laid the groundwork for better margins, the regulatory woes have pushed the fundamental story out of the picture, at least for the moment.
Perhaps the harshest comments I came across this morning were from Laura Conigliaro of Goldman Sachs. She wrote today that she sees the latest announcement “as potentially part of a larger picture involving Dell internal controls, noting that in addition to the “accruals, reserves and other balance sheet items” referred to in an 8-K filed with the SEC on September 11 , “ineffective controls relating to Dell’s fundamental business have shown up in the past few quarters in the form of unecessarily aggressive pricing, badly chosen go-to-market strategies, and poor customer service-related decisions.”
In Conigliaro’s view, the earnings pushouts and formal SEC probe, on top of cancelled analyst meetings and “other execution miscues,” will “override any but the most extreme improvements in Dell’s fundamental business for the near-term.”
She also worries that there is now “a very real possibility” that the situation could lead to management changes and create even more uncertainty around a company “that has already decided to provide less detail and no targets.”
Richard Farmer, an analyst at Merrill Lynch, who has a Neutral rating on the stock, notes that Dell now faces four investigations: the SEC, U.S. Attorney for the Southern District of New York, the board’s audit committee, and its own financial and legal teams. Uncertainty around the company, he notes “is increasing.”
Shaw Wu, of American Technology Research, theorizes that the issues “could be related to Dell’s treatment and accounting of marketing rebates from Intel (NASDAQ:INTC) and its product warranties.” He is Neutral on the stock, and worries that “Dell’s problems are structural in nature where its cost advantage has been greatly narrowed and its direct model is not ideal is addressing key segments, including consumer and international.”
The bottom line is that while fundamentals may be improving, as bulls like Citigroup’s Richard Gardner note this morning, most investors appear too distracted by Dell’s other problems to care.
Dell shares today are down 87 cents at $24.88.