Novice Investing - Dell-ighted At Dell

Date: Sunday 20th 2008f July 2008 12:52:49 PM

Dell-ighted At Dell - 11/22/2006

By: Novice Investing Staff

Dell Inc. (DELL) rose 9% to $ 27 after reporting its delayed third quarter earning. Originally, Dell was scheduled to report on November 16th, 2006. The report was delayed due to investigation by Security and Exchange Commission (SEC). While third quarter earning may be reviewed, preliminary figure shows Dell booking a net income of $ 677 Million or 30 cents per share with revenue of $ 14.38 Billion, versus 24 cents per share profit expectations.

While earning for the third quarter widely beat expectation, please note that Dell did not give guidance for the fourth quarter due to uncertainty regarding continued investment in customer experience, global expansion and new product introductions. Analysts expect Dell to earn 28 cents per share. To us, those excuse does not seem reasonable. How much would you need to expand or improve customer experience in one quarter? Surely, you all have certain budgets to go through and stick with that (more or less). This sounds more like a desperation to prop up stock price.

Let's think of it this way. We know that the future is uncertain. However, the business part of Dell is more certain than others. Why didn't Dell guide earnings excluding certain investments? Is business that bad so that it cannot give its prediction to analysts? Now, almost everybody knows that Dell's customer service had been suffering in the past year and the move to invest more on customer service is a welcome move. But, the unwillingness to provide guidance in the midst of a turnaround suggests that a turnaround is not there yet.

Granted, Dell is not in any danger to face bankruptcy. It is well-flushed with cash with positive net cash of $ 10.0 Billion in the bank, give or take a billion. However, to suggest that the worse is over for Dell is fooley, indeed. The 9% rise in stock price indicates exactly that. We do not think that is the case. While Dell is not expensive related to peer, the 3rd quarter earning report does not warrant a 9% rise in share price.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Dell Inc. (DELL) or any other securities.

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