Foolish Forecast: Dell Takes a Wrong Turn

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Dude, Dell (Nasdaq: DELL) reports its fiscal Q2 2009 earnings Thursday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Thirty analysts follow Dell, giving the stock 16 buy ratings, a dozen holds, and two sells.
• Revenue. On average, they expect to see sales rise 8% to $15.95 billion.
• Earnings. Profits are predicted to rise 12% to $0.36 per share.

What management says:
Reviewing the earnings release from back in May, fellow Fool Anders Bylund keyed in immediately on Dell's new mission: Market Share First, Profits Later. Dell claimed to grab share in three key markets: consumer sales, notebooks in particular, and servers. From whom it stole the share, Dell did not say, but judging from recent reports, I'm guessing it wasn't Hewlett-Packard (NYSE: HPQ) or Apple (Nasdaq: AAPL), both of which are going strong.

What management does:
Though we're not quite sure yet whom Dell is beating, the numbers below confirm that the company's own profit margins are definitely taking a beating. After rising steadily for several quarters, gross margins took a dive in the quarter ended in May, pulling operating margins down with them and tethering rolling net margins to their August 2007 levels.

Margins	2/07	5/07	8/07	11/07	2/08	5/08
Gross	16.6%	17.0%	18.3%	18.7%	19.1%	18.8%
Operating	5.3%	5.3%	5.8%	6.0%	5.9%	5.8%
Net	4.5%	4.4%	4.8%	5.0%	4.8%	4.8%

One Fool says:
Yet another of my colleagues recently berated Dell, though, for trying to steal share from Apple (and Microsoft (Nasdaq: MSFT) and SanDisk (Nasdaq: SNDK) as well) in the portable music player market. I have to agree.

Dell's finally getting some traction in servers and laptops, two key areas for growth at the company. Our deep value team at Motley Fool Inside Value recently praised the company for posting "strong growth" in software, peripherals, and services as well, and for expanding international sales.

What I don't get is why Dell would go and dilute that progress by distracting its managers with a new product that seems doomed to fail. With H-P focused on digesting EDS (NYSE: EDS) and tackling IBM (NYSE: IBM) in the services market, now's the time for Dell to focus on its primary rival -- Hewlett-Packard -- and its primary market -- computers. Not go haring off after Apple in a quixotic race for cool.