Wednesday, August 26, 2009

Dell (NYSE: DELL): Earnings Preview Second Quarter, 2009

. Wednesday, August 26, 2009

By stockOzone team

Dell (NASDAQ: DELL), the second largest pc maker, is scheduled to report its second quarter results after the market close on Thursday, August 27, 2009. Analysts, on an average, expect the company to report earnings of 23 cents per share on revenue of $12.57 billion. In the year ago period, Dell reported quarterly earnings of 31 cents per share on revenue of $16.4 billion.

Dell Inc., engages in the design, development, manufacturing, marketing, sales, and support of computer systems and services worldwide. It offers desktop PCs and workstations; notebook computers; servers and networking products; and storage solutions, including storage area networks, network-attached storage, direct-attached storage, disk and tape backup systems, and removable disk backup.

The company has been hit hard by declining corporate IT spending and sharp slump in pc sales amid accelerating job cuts and declining consumer spending. Moreover, the Round Rock, Texas-based company's profit margins have been squeezed out by unfavorable cost issues, stiff competition and a severe economic recession. The company's first quarter profit fell 63% to $290 million or 15 cents per share as compared to $784 million or 38 cents per share in the the year-ago quarter. Excluding restructuring charges, Dell earned 24 cents a share in the first quarter. Revenue for the first quarter fell 23% to $12.34 billion from $16.08 billion in the same quarter last year.

Last month, the pc maker said that it expects a slight sequential increase in fiscal second-quarter 2010 revenues. The PC maker, however, warned that its gross margin for the quarter would be negatively impacted by factors including higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand. The company also said that it is on course to reduce its annual costs by more than $4 billion by the end of fiscal 2011, while indicating the need to remain focused on optimizing liquidity, profitability and growth in the midst of economic downturn. Dell said further that it is targeting a 5% to 7% compounded annual sales growth over a long time horizon, with at least 7% growth or above in operating income and cash flow exceeding net income.

Meanwhile, there are early signs of recovery in the global economy and pc market. According to market research firm Gartner Inc. and IDC Corp., in the quarter ended June 31, PC shipments fell more slowly than they had originally anticipated as consumers bought small netbooks and manufacturers continued discounting to boost sales. In the quarter ended June 30, Gartner said world-wide computer shipments dropped 5%. It had previously forecast a 9.8% decline. IDC said shipments declined 3.1%, less than its prior forecast of 6.3%. Also, corporate IT spending is expected to recover, with upcoming hardware/Operating System transitions serving as catalysts.

Recently the company confirmed that it will introduce a handset called Mini3i in China.It has selected China Mobile Limited - China's biggest cell phone carrier -- to roll out the phone exclusively in China.

Shares of the company are currently trading at 13 times consensus 2011 EPS estimates. In terms of stock performance, Dell shares have gained almost 40% since the beginning of the year. On Wednesday, shares of the company rose 10 cents or 0.69%to to close at $14.67.

Disclosure: Author does not own any of the stocks discussed here.

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