Dell the dying swan. Posted a week ago that Dell seems to have a huge quality control and customer relations problem. Dell's own numbers and Barrons seems to agree with the anecdotal analysis. The consumer wants to buy a commodity computer, take it out of the box, and turn it on and go. With Dell lately, a computer out of the box that works is rare. The next step is to call their help center in India where they pretend to speak English, pretend to know anything, and pretend to care. I predict that Dell will flounder down until they fix their biz and refocus their attitude towards customers. This could take years, could take never.
From Barrons, Abelson below.
So spake the incomparable Fred Hickey when we chatted with him on Friday (the company released its earnings on Thursday, which occasioned our call). While in its official exegesis of October-quarter results Dell cited softness in the U.S. and U.K. consumer markets as the prime culprits responsible for its lackluster showing, Fred says the striking thing was how relatively poorly it did just about everywhere. And everywhere in this case includes the booming Asia-Pacific market, which takes in China and Japan. The only real strength for the company, he notes, came courtesy of U.S. business demand.
Fred was particularly disturbed by what he espies as the deterioration of Dell's balance sheet, something, he sighs, the analysts who follow the company seem to pay scant attention to. In particular, he cites the rise in inventories, receivables and payables, along with ballooning "other assets," a vague and catchall category.
He further questions Dell's heavy repurchases of its own stock, which for all they may support per-share earnings, eat away at stockholders' equity. In that regard, he sighs, book value has shrunk steadily to its present reduced status of less than $2 a share (his more precise calculation puts it at $1.98). Which means, among other things, that Dell's stock is selling at around 15 times book, a rich price, indeed, for a company whose growth is perceptibly slowing.
What's more, Fred observes, Dell's middling performance is taking place against a backdrop of pretty vigorous PC demand: Worldwide unit sales are up something like 17% this year. If Dell finds the going tough now, he can't help but grimace at its prospects if, as he anticipates, consumers, under pressure from high fuel prices and a less accommodating housing market, cut back their frenetic consuming of all kinds of stuff, including computers.
He doesn't think, to state the obvious, that Dell has seen the last of its woes or that its stock, even after suffering a spate of selling, bears much resemblance to a bargain.
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