Dell Gives Numbers, Not Answers

Releases preliminary earnings but sheds no light on SEC investigation or guidance

November 23, 2006

2 Min Read
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Troubled Dell shed some light into its business Tuesday evening by reporting preliminary earnings for last quarter. (See Dell Announces Earnings and Dark Days at Dell.) While the financials were better than expected in the face of its problems, Dells failure to hold a conference call to answer analysts’ questions left, well... unanswered questions.

Dell said it had revenues of $14.4 billion, earnings of $677 million, and earnings per share of $0.30. It matched analysts’ expectations for revenues while coming far above the consensus EPS forecast of $0.24. That suggests that Dell sold more higher-margin products last quarter.

Storage was among the bright spots, with revenues increasing 28 percent from last year, compared to Dell’s overall growth of 3.4 percent. Storage accounted for 4 percent of Dell’s total revenues, up from 3.2 percent a year ago.

Investors reacted positively to Dell’s delayed and preliminary numbers, but the company is far from in the clear. It still has a Securities and Exchange Commission (SEC) investigation into its accounting, lagging sales in the U.S., and questions about management hanging over its head. Dell also gave no guidance for this quarter.

Analyst Charlie Wolf of Needham upgraded Dell’s shares from Hold to Buy today, claiming the results “suggest that Dell has changed its religion. It’s no longer pursuing growth at any cost but trading faster growth for healthier margins.” Then again, Wolf added in his research note, “The obvious risk is that Dell’s third-quarter results were simply a one-quarter blip and that Dell has not seen the light.”Other Wall Street analysts were less kind. According to David Wong of A.G. Edwards, Dell’s results look good only because of lowered expectations. “While clearly Dell’s October results were far better than our estimates, our primary concerns of near term market share losses and weak top line growth remain unchanged,” he wrote in a research note. “We view these results as impressive only in comparison to low expectations and a particularly weak July quarter.”

Dan Renouard of R.W. Baird wrote that Dell’s revenue growth was disappointing and raised its risk profile to
“ 'higher risk’ given transitioning business model and SEC investigations.”

The SEC is formally investigating Dell's revenue recognition practices. Nasdaq notified Dell Sept. 15 that it is out of compliance and can face de-listing because it had not yet filed its most recent earnings.

— Dave Raffo, News Editor, Byte and Switch

  • A.G. Edwards

  • Dell Inc. (Nasdaq: DELL)

  • Needham & Co.

  • Robert W. Baird & Co. Inc.

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