Earnings Preview: Dell fiscal 3rd quarter
Analysts see low-margin PCs weighing on Dell; more profitable segments are still the minority
SEATTLE (AP) -- Personal computer maker Dell Inc. reports its third-quarter results after the stock market closes Thursday.
WHAT TO WATCH FOR: Analysts will be taking a hard look at Dell's profitability, searching for signs that the company is selling more high-margin products to businesses and making a bigger profit at its consumer PC division.
Collins Stewart analyst Louis Miscioscia said currency rates are more favorable and component prices are lower now than they were in the last few quarters, but that he doesn't expect those factors to be an instant boon to Dell. Companies are replacing aging computers, which helps Dells' revenue, but at a slower clip than predicted at the beginning of the year.
The places where Dell has a chance to make up for generally low margins in personal computers -- technology consulting services, server computers and data storage systems -- still make up a small chunk of the company's business.
Rodman & Renshaw analyst Ashok Kumar wrote in a note Wednesday that he sees Dell trying to gain market share in consumer personal computers by cutting prices, at the expense of profits. (Dell, for its part, has repeatedly said this is not its strategy.)
Kumar also wrote that he expects cautious guidance from Dell executives, especially given that 25 percent of its revenue comes from government customers. On Nov. 10, networking gear maker Cisco Systems Inc. said new orders from government customers fell below expectations.
WHY IT MATTERS: With more than half its business coming from PC sales, Dell provides a window into computer-buying sentiment among both consumers and big businesses. But falling PC prices leave little room for profit, so Dell investors want to see the company make progress on becoming a more diverse provider of technology to big corporations
WHAT'S EXPECTED: Analysts expect Dell to report net income of 32 cents per share on $15.7 billion in revenue.
LAST YEAR'S QUARTER: Dell, based in Round Rock, Texas, missed Wall Street's forecast last year, with net income dropping 54 percent to 17 cents per share. Revenue fell 15 percent to $12.9 billion.
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