I have been following Dell (NASDAQ: DELL) since its 1988 IPO. No question, this was a mega-gamechanger company for years. The vision of Michael Dell creating this company from his University of Texas dorm room is inspiring. The dorm room became the new substitute for company creation as the Hewlett-Packard (NYSE: HPQ) garage served beforehand. Dell was a great American success story---but the key here is WAS.
Dell remains a sell. I wrote back in early 2007 that this company is doomed because of the total commoditization of its product line. Desk tops, laptops and servers were judged more by pricing than by functionality. Hewlett-Packard took market share away from Dell these past five years, and even the return of founder Michael Dell to the CEO role was not going to save this company.
Many brokerage firms research analysts kept holding out the promise that Michael's return would salvage this once great gamechanging company and return it to its glory years. I wrote no way. It's a pipe dream and nothing more. When a company fights in the marketplace with pricing only, the margins dwindle and with that, the valuation.
Comparisons were drawn that Michael Dell's return was like Steve Jobs return to Apple (NASDAQ: AAPL). Once again, no way. Apple has an incredibly unique product set and with that uniqueness comes pricing power and improving margins. Steve Jobs has tapped into the consumer market beautifully. Dell is stuck fighting the war with Hewlett Packard and many Asian competitors with nothing unique or new, just name recognition and lower pricing.
Dell reported a disappointing quarter with profits down 17%. The shock many analysts are going through is surprising. Dell is a marginalized company with still-shrinking margins. The company cannot command a premium valuation or PE ratio with this economic model.
I said it 2007 and I will say it again here in 2008, Dell is a sell.
Georges Yared is the editor of GameOnInvesting, a free service devoted to helping investors spot game-changing stocks before they breakout.
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Reader Comments (Page 1 of 1)
8-29-2008 @ 2:00PM
realitybites said...
Dell is on my deathwatch for several months...the consensus among my peers is 3rd qtr 2009 before they become so insignificant they Gateway themselves back to their dormroom beginnings.
They have no IP, no revenue stream, own no property, no big pile of cash, no inventory, no AR, no appreciable assets.
I think they're a goner and Michael Dell will ride them down like Slim Pickins atop his atom bomb in Dr Strangelove.
Perhaps Dell's "sell the assets and return something to the shareholders" comment about Apple was a precursor to his own fate.
8-30-2008 @ 8:35AM
Moe said...
I got to tell you that DELL is horrible. I just ordered 10 studio 15 laptops for my business in July. They said they would ship within a week. I got my first delay notice on the day the should ship. received my second delay notice during the first week of August. And then the cancelled my order completely due to a lack of inventory according to them. Are you serious? A $10,000 order cancelled and the loss of a major up and coming business. I totally agree with the sell order. If you were smart, you would short sell this company and take the 10% profit you are bound to have in the next couple of months.