--Wall Street concerned about Dell's ability to transition
smoothly to higher-margin markets
--Analysts looking to effects from uncertainty in Europe and
weak U.S. public-sector spending
--Analysts expect first-quarter profit of 46 cents a share on
revenue of $14.9 billion
By Benjamin Pimentel
Dell Inc. (DELL) will report financial results Tuesday with Wall
Street expecting a modest drop in revenue, amid questions about the
technology giant's ability to make a smooth transition to
higher-margin markets.
Dell, scheduled to post results for the fiscal first quarter
after the market closes, also will draw scrutiny as analysts cite
macroeconomic headwinds facing the company, including
sovereign-debt uncertainty in Europe and, closer to home, weak
public-sector spending.
Analysts, on average, expect Dell to report a profit of 46 cents
a share, on revenue of $14.9 billion, for the quarter, according to
estimates compiled in survey by FactSet Research.
For the year-earlier period, the Round Rock, Texas, company
showed a profit of 55 cents a share while generating revenue of $15
billion.
"Despite the continued shift away from the lower-margin consumer
segment toward enterprise, we see limited scope for top-line growth
and margin expansion longer term and maintain our underperform
rating," Credit Suisse analyst Kulbinder Garcha said in a note.
Sentiment on Dell's stock has eroded significantly over the last
three months, during which time the shares have fallen by more than
18%. The stock is still up about 1% for the year to date.
Management's pushing aggressively to expand Dell's presence in
more lucrative segments of the technology market, mainly geared to
business customers.
But this push toward higher-margin businesses has meant sluggish
revenue growth.
"We believe changing the composition of a roughly $60 billion
revenue base is non-trivial and takes years (not quarters) to
successfully navigate," ISI analyst Brian Marshall said in a
note.
Sterne Agee's Shaw Wu also made this point in a note to clients,
highlighting Dell's huge exposure to the low-margin PC market,
which has also gone through a period of slower growth.
"We remain concerned that Dell is in a tough fundamental
position sandwiched between low-cost players and Apple encroaching
more in its core PC business as Macs and mobile devices gain
share," he wrote.
Apple Inc. (AAPL) has steadily gained share, especially in the
U.S. PC market.
"Despite efforts to grow beyond a PC company with multiple
acquisitions over the past few years, we estimate 70%-75% of its
business is still tied to PCs," Wu added. "We still believe Dell
needs to take bolder, more aggressive steps to reinvent
itself."
-By Benjamin Pimentel; 415-439-6400;
AskNewswires@dowjones.com
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