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Dell's stock sinks; are investors losing faith in company's new vision?May 24, 2012 (Austin American-Statesman - McClatchy-Tribune Information Services via COMTEX) -- Investors savaged Dell Inc.'s stock Wednesday, raising concerns that they have lost faith both in the Round Rock company's business transformation strategy and in the stability of the global personal computer market. The result was a trouncing of Dell's stock, which dropped by $2.59 a share, or 17.2 percent, closing at $12.49 in heavy trading Wednesday. The sell-off was triggered by disappointing first-quarter financial results posted by Dell late Tuesday. That report showed that Dell's revenue had fallen 4 percent from the same quarter a year ago, while profit dropped 33 percent. Those results led to the sharpest drop in the company's stock price since 2000. Analysts said Dell is struggling to cope with multiple adverse forces in the computer business. Those include: the rise of mobile devices, including smartphones and tablet computers, a market in which Dell does not presently have a product; an economic slowdown in parts of Asia, which has propped up the PC business in recent years; aggressive price cutting by China's growth-oriented Lenovo Group; and delays in some purchases of advanced computer equipment as businesses attempt to take in the new look of the information technology business. Those forces took their toll in the latest quarter, where Dell saw a 10 percent drop in sales of notebook computers, the company's single largest-selling product group. Also, some corporate customers delayed making new purchases of advanced products and services. And Dell officials acknowledged for the first time that their business was being adversely affected by the rise in new mobile devices. While that was going on, Dell acknowledged that it was rebalancing its global sales force, which is being retooled to sell more advanced products and services. That, analysts say, created doubts about Dell's strategic plan to shift more of its business to sales of advanced hardware, software and services to corporate customers. That is part of the company's long-term plan to become a full-service information technology supplier rather than a commodity PC maker. "Dell is a big ship that is making a turn in rough seas," said analyst Roger Kay with Endpoint Technologies Associates. "What investors want to know is, how alert are the captain and the crew, and can they see through the fog?" Kay said he was concerned about the tone of CEO Michael Dell's voice as he answered questions from analysts on Tuesday after the company's earnings were released. "It was not terribly confidence-inspiring," he said. "His enthusiasm and aggression levels have been higher." Dell isn't the only PC maker that is struggling. Giant Hewlett-Packard Co. announced weak earnings Wednesday and unveiled plans to cut 27,000 jobs, or 8 percent of its workforce. By contrast, Dell has been adding workers at it has acquired new companies and has added specialized salespeople to sell its products. Dell said it had 109,400 workers worldwide at the end of January, up 6,100, or about 6 percent. The company employs more than 16,000 people in Central Texas. Investors have been losing confidence in the PC business in the face of the dramatic rise in sales of smartphones and tablets, which offer some of the processing capability of a PC in a far more mobile format. "Investors have been circumspect about the PC market, and now you have Lenovo being incredibly aggressive in emerging markets," said Jayson Noland with R.W. Baird & Co. While Lenovo has dented the sale of Dell's notebook computers, which fell by 10 percent in the latest quarter from a year ago, Noland said investors also are questioning how well the company is handling the complex transition toward becoming a full-service supplier of advanced hardware, software and services to small, medium and large business customers. Dell is being hit by too many issues at once, including a shift toward use of new kinds of mobile devices -- including smartphones and media tablets -- both by consumers and by business workers. "It is the consumerization of information technology, and the beneficiary is Apple," said analyst Ashok Kumar with Maxim Group. Dell has already tried and failed to introduce new smartphones and tablets. The company expects to introduce new lines of mobile devices this year with the launch of Microsoft Corp.'s Windows 8 operating system software. Dell's consumer strategy in Asia has been to sell some higher-priced computers, on which it can make a profit, and to avoid low-priced models, for which profits are extremely thin and competition is fierce. But that strategy didn't pay off in the first quarter as Asian competitors drove prices lower. Dell is investing billions of dollars in business acquisitions and a larger sales force to support its more complex product offerings, but the company acknowledged that it is now in the process of rebalancing that larger sales force to concentrate on the right sets of customers in the right countries. Those adjustments may indicate that Dell's transformation process is either running into problems or it is going to take longer to accomplish than investors were counting on. Other analysts echoed that assessment. "Despite efforts to grow beyond a PC company with multiple acquisitions over the past few years, we estimate that 70-75 percent of its business is still tied to PCs," Sterne Agee & Leach's Shaw Wu wrote in a report released Wednesday. "We still believe Dell needs to take bolder, more aggressive steps to reinvent itself." Analyst Brian Marshall with ISI Group said Dell is making the right changes but it will take time to transform the company. "Results will remain 'chained' for years (not quarters) to commodity desktops/notebooks which comprise over half of its sales," he wrote. Analysts say Dell will eventually have to revise its earnings guidance for the year downward. But Kumar said Dell should hold off on new guidance until August when it reports its next set of quarterly results. That will give it a chance to assess what the new normal is for the global PC market. Contact Kirk Ladendorf at 445-3622 ___ (c)2012 Austin American-Statesman, Texas Visit Austin American-Statesman, Texas at www.statesman.com/","http://www.statesman.com/ Distributed by MCT Information Services |