Dell's Got a Demand Problem

by: Eric Savitz November 13, 2008 | about stocks: DELL    

Eric Savitz

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Yesterday’s ugly Q4 warning from Intel (INTC) has triggered several analysts to take a more cautious stance on Dell (DELL) - after all, fewer processors sold is a pretty good hint that there will be fewer PCs sold.

  • Goldman Sachs analyst David Bailey moves to Sell from Neutral, cutting his price target to $9, from $14. “Even at current depressed levels, we expect Dell shares to underperform on an absolute and relative basis as margins and earnings deteriorate further,” he writes. “Without software offerings of its own and with a services business that is tightly tied to its hardware shipments, Dell remains highly dependent on transactional hardware sales and pricing, both of which are likely to suffer as demand falls.” His EPS estimates drop to $1.31 from $1.44 for this year, and to $1.25, from $1.51 for next year.
  • Keith Bachman, of BMO Capital, cuts his rating to Market Perform from Outperform, reducing his target to $11, from $14. “While Dell’s stock may be inexpensive, we have many stocks in our coverage universe that are inexpensive and offer greater earnings growth potential,” he writes. “The fundamentals of the PC market will remain challenging, such that Dell’s stock will be range bound, with no catalyst.”
  • Richard Gardner, PC analyst at Citigroup, now sees 2009 PC unit growth down 10% in the U.S., and 3% globally, down from down 3% here and 5% overall previously. He sees a 15% rise in netbooks, but a whopping 21% drop in desktop shipments. He cut his Dell EPS estimates today to $1.37 from $1.49 for this year, and to $1.12, from $1.58 for next year; his target price drops to $14, from $21. Gardner made a similar move on Hewlett-Packard: His current year EPS estimate remains $3.60, but next year goes to $3.72, from $4.16. His target drops to $55, from $62.
  • Credit Suisse’s Bill Shope now sees 2009 PC unit volume down 4.7%, versus his previous forecast for a 4.9% increase. His January 2009 FY estimate drops to $1.30, from $1.35; for 2010, he goes to $1.22, from $1.59. He cuts his target price to $15, from $18. “Although we concede that a more severe recession scenario does make the turnaround story more difficult for investors, we believe Dell can still exit this scenario with its restructuring efforts intact and that the shares remain attractively valued,” he writes.

Dell today is down 78 cents, or 7.43%, to $9.72.

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This article has 3 comments:

  •  
    Nov 13 03:30 PM
    Not only is it a demand problem but they are also cutting prices and cutting margins. Dell's big problem is no value ad to the computer. It is like a generic drug. Why buy Comtrex when you can buy the CVS brand. In Dell's case HP, Lenova, Acer, etc all make pcs and they all are pretty similar. Apple is the only computer that has a value ad which is the mac OS. Dell needs to add something useful. HP is trying to add touch to their computers but it still appears like a gimmick but at least they are trying to differentiate their brand.

    The question is, if Dell went out of business would anyone miss them or could you just buy a similar computer from another PC maker.
    Reply | Link to Comment
  •  
    Nov 14 12:39 PM
    One thing that Dell has dramaticly improved is their customer service. That is a huge factor that is being overlooked by many. While it is true that they have a demand problem, so does everyone else. It is in the stock already. Computers are a cyclical business in that purchases can be deferred for awhile. Computers wear out and become obsolete so the deferred demand is just that ; deferred. Beware of valuing a company on trough earnings. Dell owners will likely have a profit stream for many years.


    PS: I own no stock in Dell
    Reply | Link to Comment
  •  
    Nov 17 03:01 PM
    'Everyone' does not have a demand problem like Dell has a demand problem. In fact, in Apple's recent statement, Mac sales are UP. Look, just buy a generic motherboard, power supply, graphics, case, etc... It's the SAME THING you get from Dell, which is the same as any other generic PC. And they ALL are SLOWER than Mac, and look 10 years older.
    Reply | Link to Comment
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