Earnings Preview: Dell

| About: Dell Inc. (DELL)
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Dell (DELL) is expected to report Q2 earnings after the market close on Tuesday, August 21, with a conference call scheduled for 5:00 pm ET.


The consensus estimate is 45c for EPS and $14.66B for revenue, according to First Call. Last quarter, Dell reported its second earnings miss in a row, and an outlook that was far bleaker than analysts expected. For Q2, analysts are expecting revenue that falls slightly short of expectations, but healthier profit margins. Guidance from management was for Q2 revenue up 2%-4% sequentially from the $14.4B reported for Q1.

Analyst Views

Generally speaking, demand at Dell's enterprise businesses has likely held up a lot better than its PC business has, analyst Chris Whitmore of Deutsche Bank said yesterday. Despite weak PC shipments, he believes Dell's server and storage revenue was relatively healthy as Dell is off to a good start with the Romley transition -- the codename for the latest generation of Intel (NASDAQ:INTC) server chip. As a result, Whitmore expects "Q2 revenue to miss due to soft PCs, but mix to shift towards Dell's higher margin infrastructure products." Dell's gross margin will be at 22%, Whitmore said -- a point lower than year-ago, but as cost-cutting measures and shift in the overall mix of products sold becomes more profitable, he sees that improving. Still, there's a ways to go on the turnaround, Whitmore says. Dell shares are near multi-year lows amid concerns over the impact of competition in the PC market from lower-cost providers, Apple's (NASDAQ:AAPL) Macs, tablets, and mobile devices. But with the shares off about 17% YTD, fetching just 6.1x forward earnings and 0.35x sales, much of the weakness could be priced in as the company returns money to shareholders with a 2.7% yield.