There was a time when Dell Inc. (NASDAQ: DELL) was the cream of the crop in the PC business. Its college dorm beginnings and customization model allowed the company to separate itself from a host of other competitors.
It is hard to say what exact magic it was that allowed the DELL story to unfold, but suffice it to say the company was the best in the business at selling computers to individuals and small businesses. But I'm not so sure that is the case any longer. The heady days of the dot-com boom were when this company reached its prime. It has been a slow death ever since.
At its peak, DELL traded for a split adjusted price of nearly $60 per share in the early part of this decade. Today you can buy shares for less than $10. If you have stuck with the company, you have endured a lot during the last nine years.
The reasons for the decline are many, and exemplify a common theme for growth companies. Domination in a sector causes a star to shine brightly. That strength attracts competitors. Each and every day your competition wants to bring you down.
At the same time, you get fat and lazy. You're sitting at the top of the food chain and the behavior that led to you rising to the top slips by the wayside.
In addition, no business is immune from the business cycle. If you are not prepared to deal with declines in your business, you will suffer. Companies, even those at the top, must constantly innovate and diversify their revenues stream.
A great example of a company that is successful in this game is Apple Inc. (NASDAQ: AAPL). The company never rests on its laurels. It is always innovating and, as such, it stays at the top.
Dell did not innovate. They sat on their assembly line business and figured that was good enough. Clearly it was not.
After the bell yesterday, Dell announced fourth-quarter results for the period ending Jan. 30. Profits fell by 48% to 18 cents per share. Excluding items, the number was 29 cents -- one penny above analyst expectations.
Revenues fell by 16% to $13.4 billion versus a forecast of $14.06 billion.
These results reinforce traders that had pushed the valuation of Dell to a 10-year low. Shares were higher today, though, because the results could have been much worse. The company appears to be on a strategy of forgoing market share in favor of cost cutting.
Is this company still relevant? Are the results due to the economy or something deeper?
Only time will tell.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates DELL a D or Sell.
Jamie Dlugosch is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
2-28-2009 @ 6:21AM
al coholic said...
As the computer market matured, it became obvious to consumers that they had evolved to the point that they were a commodity, and the brand just became less important. Since most computer manufacturers simply plug in parts made by the same vendors, and most are reasonably dependable, Dell has nothing to offer but price.
Apple, on the other hand has been able to continually originate new products, allowing them to charge a premium.
Apple has also followed a market strategy of wooing school kids wilth their "coolness" thereby creating a lot of brand loyalty. Apple knows that parents will spend virtually anything to help their childrens' education so they pony up for laptops that cost nearly twice as much as a PC with virtually the same specs, which reinforces even more brand loyalty because when the kids get older they seem to stick to the Apple brand.
2-28-2009 @ 9:10AM
itguy08 said...
Dell never was best of breed. As an IT veteran, Dell always made junk computers. They never were good, quality, or a value.
They had a great inventory model (JIT, borrowed from the auto industry) that allowed them to be cheap. But that's just what they are - cheap JUNK.
2-28-2009 @ 9:14AM
BHarrison said...
Well, I am still a content DELL user. Their 24/7 Premium Gold service contract has been well worth the price and their support performance has been extremely good . . . This service is support by "Americans in country". it is simply a matter of "getting what you pay for . . ."
They just replaced a motherboard on my sister-in-laws Dell PC also. They did a superb job.
Everyone just seems to be too quick to want to "bash the guy at the top". That really isn't in our best interests.
Yeah, I experienced a few problems when I bought my Dell Precision 390 two years ago; but Dell worked to straighten all of that out. Their service departmetn was superb, relatively speaking.
If you want to "buy American" and support our manufacturers, then buy Dell.
2-28-2009 @ 10:10AM
HerkimerFudpucker said...
Personally, I have felt and still feel that Dell computers are over priced, especially since they sell direct. I never owned one but family members have owned several (because of easy payments?) and all have been one problem after the other. One owner called hers the Dell rom Hell.
5-05-2009 @ 6:27AM
Johnny said...
I use dell, Their 24/7 Premium Gold service contract has been well worth the price and their support performance has been extremely good.Apple, on the other hand has been able to continually originate new products, allowing them to charge a premium. I like install software down from http://www.copy-dvd.org and make my DIY.