Dell Sings a Sad Song

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"Anything you can do, I can do better
I can do any thing better than you
No you can't, Yes I can, No you can't, Yes I can"
 -- Annie Get Your Gun, Irving Berlin, 1946

Those words ring in my ears as I page through Dell's (Nasdaq: DELL) fiscal third-quarter earnings report. And in my mind, it's Michael Dell's voice singing the "No you can't" part, while Hewlett-Packard (NYSE: HPQ) and Apple (Nasdaq: AAPL) jeer the rejoinders in harmony.

The news
By my count, some 100-plus stories have already been filed on Dell's earnings, though they're less than 24 hours old. By now, you know the basics:

• Dell sold 19% more "stuff" this year than last.
• But it sold the stuff at 270 basis points less of gross margin, and saw its operating margin sink to a meager 5%.
• Thus, revenues increased only 11%, while profits dropped 6% to $0.31 per share -- and would have been worse, but for Dell's buying back 12% of its shares over the past year.

Meanwhile, on the sunny side of Wall Street, Dell boasts of "Share Gains in All Product Categories and Regions." Well, bully for Dell -- but here's the thing:

The thing
I can sum up my Dell disappointment in two words: fickle consumers. Michael Dell takes more than two dozen words, but the import is the same: "The company sees continued conservatism in IT spending in the U.S., which has extended into Western Europe and several countries in Asia. Demand also is affected by currency fluctuations."

So where Dell crows over its market share gains, I see little more than fickle consumers who've shifted over to the Dell aisles at Best Buy (NYSE: BBY) and Wal-Mart (NYSE: WMT), following the "Price Rollback" signs. Sure, Dell's selling more stuff right now. But to move the merchandise and grab share, it's slashing prices and bleeding lost profits all over the sales floor.

What I want to know -- and hint, this is a rhetorical question -- is what happens when Dell decides to earn a little more on its sales, and raises its prices? Answer: The same fickle consumers who gave Dell their business when its stuff was cheap, will shuffle on over to whomever has the next-best price. Simply put, Dell's newfound market share looks ephemeral. Not worth the price Dell is paying in eroded profits.

The price
And for what it's worth, yeah, at 22 times its run rate on free cash flow this year, the stock's not worth the price, either. There, I said it. Flame away.

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