Dell's Further Demise

The last time I wrote about Dell was in this post, last January. I contended in that piece,

"Why do you suppose that these CEOs, as a group, mostly failed to move their firms to consistently superior total return performance?
In Dell's and Starbuck's cases, I question if they ever will. I believe, for reasons I've discussed in labeled posts on both CEOs and their companies, that competition, growth and simple Schumpeterian dynamics have worked to end their time of consistent outperformance."

Over a year ago, in April of 2007, I wrote this post, in which I opined,

"Finally, someone there said something with which I can strongly identify. Not that I ever expected it from staffers at firm, founded by Jim Cramer. But one of their number spoke truth to power last week on CNBC, boldly contending, about Dell's recent malaise and accounting troubles,

'who cares? it's an old tech has been,' or words to that effect.

When the CNBC on-air anchor/interviewer sputtered unbelievingly, and stated that many people have a lot of money in Dell, and it's a big company, the Street guy retorted something like,

'so is Xerox. How big is its market cap? Does anyone think it is a leading tech firm anymore?'

Very well put. Big does by no means equal important. Often, it simply means 'still bloated and primed to collapse like a souffle' when sufficient technological change finally sweeps away the last of its ancient underpinnings. Like Kodak. A victim of corporate senescence. Its best days of profitable growth are in the rear view mirror. Consistently superior returns, if they ever happened at Kodak, are a thing long past."

According to today's Wall Street Journal article about the aging PC maker,

"Dell, Inc. reported a 17% drop in quarterly profit, raising questions about the company's 18-month turnaround effort and whether a slowdown in business spending is spreading to Europe and Asia."

I'd say Dell's latest quarterly results answer questions, rather than raise them. Specifically, they confirm that Dell, while still producing laptops and desktops, will probably never regain its prior record of consistently superior total returns for its shareholders.

Dell had to spend heavily to raise its revenues 11% in the last quarter. In effect, whatever goodwill and consumer franchise it once had that enabled it to enjoy higher margins is gone.

The nearby Yahoo-sourced price chart of Dell and the S&P500 Index for the past two years shows that the computer vendor only outperformed the index for the past four months.

For an investor, that means you have been taken for a mostly loss-ridden ride over two years, unless you happened to time your entry- and maybe exit- just right.

This isn't a resurgent performance. It's a technical bounce for a few months.

The fact that most of Dell's initiatives now involve cost-cutting is a pretty good sign that its days of profitable growth are past.

As I've written about this once-great computer maker before, it just isn't going to be coming back as an equity to own. It will make computers, and sell them. But as an investor, you are unlikely to be able to enjoy consistently superior returns from simply holding Dell anymore.