Dell Inc. (NDAQ: DELL) shares fell sharply today after the company announced disappointing results in it’s latest 8-K filing
with the SEC. The computer-maker cited high-than-expected costs as the
reason behind its earnings shortfall despite laying off 3,200 employees
and taking other cost-cutting measures. Many shareholders are now
questioning the company’s ability to execute upon its long awaited
turnaround plan that is now facing another setback. So, is Dell a stock
worth buying at these depressed levels or perhaps more of a short
candidate than anything else?
Many investors are concerned about the chronic cost increases that
Dell faces in the computer hardware business. During the fourth
quarter, the company saw its revenues expand 10% while its operating
income and net income both fell by 6%. This is a clear indication that
profitability was waning due to either increased costs or lower selling
prices. Gone are the days where Dell’s superior inventory management
and online selling provided it with a competitive advantage. Now, even
Dell faces lower selling prices across the board while its costs are
going up due to expansion outside of pure Internet sales.
“While Dell continues to drive towards a world-class cost structure
and competitiveness we have much work to do,” Mr. Dell said. “Resurgent
growth puts us on a strong footing to improve our cost position, scale
expenses and enhance productivity across our business. I am confident
that from this base we can continue to drive improvements in
profitability.”
The kicker was a short outlook where the company stated that it will
“continue to incur costs as it realigns its business to improve growth
and profitability” which may “adversely impact the company’s near-term
performance”. Dell also hinted that it expects a slowdown in consumer
demand as customers display more “conservative spending” as a result of
the credit crunch. Combined, these comments are likely what sent shares
down today as investors now know that they shouldn’t expect results to
improve at all in the near-term.
The one bright spot in its future is sales growth seen in countries
outside of the United States, which was up 16 percent and now account
for nearly half of the company’s total revenues. Growth was
particularly strongin BRIC (Brazil, Russia, India, China) countries
where revenues grew 36 percent on a 50 percent increase in units.
Meanwhile, Asia Pacific countries and Japan saw revenue growth of 28
percent while Americas International revenue grew 22 percent. Dell will
likely continue to rely on strong growth abroad to offset what will
obviously be lower sales in the US as consumer credit continues to be a
problem.
In the end, this is another disappointing quarter for Dell
shareholders. The company’s old paradigm no longer works in today’s
world and we have yet to see if it can adapt and turn itself around.
Overseas growth in emerging markets has done exceptionally well, but
the company will need to reign in its costs before it can regain any
trust. Regardless, it is a stock that is definitely worth watching over
the next year or so as it attempts to maneuver a turnaround!
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