Monday, November 23, 2009

Dell's Non-Existent Turnaround Becomes Visible At Last

My last two posts concerning Dell, here and here, detailed my belief that, despite the founder's return in January of 2007 as CEO, the company is still doomed.

The nearby 5-year price chart of Dell, Hewlett Packard and the S&P500 Index confirms this. Dell's recent equity price rise is about the same as the index's, after having fallen much further since Michael Dell returned.
Even since early January, HP's equity price has risen, while Dell's has fallen.

Dell's recent quarterly earnings report provides more bad news. Its profit dropped 54%, while the rest of the technology sector has been on fire.

Its sales also fell, by 15%. That should be the real worrisome trend. My proprietary research has shown that growth firms are so-noted chiefly by consistent revenue growth, relative to the market. Dell is now going south.

Rival HP reported higher profits in this quarter than the year-ago period, amidst revived demand.

According to an analyst cited in the Wall Street Journal article about Dell last Friday, Dell's gross margin has dropped by half a percentage point, as prices fall while component costs rise.
Schumpeterian dynamics continue to bedevil the aging direct-purchase computer maker. Michael Dell has returned, executives have been shuffled, and Perot Systems has been bought, all to no avail.
Dell's golden age continues to recede further into the past, while the current management team burns through more money and continues to provide no compelling reason for shareholders to remain and see their equity investment underperform an inexpensive S&P index fund.

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