It looks like Dell
Just the facts, please
Fourth-quarter sales for the computer giant came in at $13.4 billion, 16% below the year-ago quarter. GAAP earnings fell from $0.31 per share last year to $0.18 this time. That's about equal to the state of affairs at Hewlett-Packard
Dell's worst performance came in its corporate segments; commercial sales dropped by 17% or more around the world.
That leaves the consumer market, where Dell thinks that it grew market share during the quarter. An 18% increase in unit volume led to 7% fewer dollars collected, which was $3 billion. "More consumers [are] choosing lower-priced notebooks and desktops," explained the earnings release. So, Dell is in the deep-discount business now, catering to the lower end of the computer systems market. I'll remember that the next time I need a new laptop.
Upside, meet downside
But I'll also remember it the next time I want to buy a stock. The tiny margins of low-end systems may help Dell protect its market share, and may even lead to higher sales somewhere down the road. But it's also a recipe for shrinking profits. Wal-Mart
Dell may be big, but it still can't compete on quite that scale. Despite claims of stronger cost reductions than expected, Dell's profit margin was cut to 2.6% from 4.8% last quarter. Ouch.
What it all boils down to
The company remains profitable and cash-flow positive, which gives Mike Dell and his crew some time to right this floundering ship. But it's still going down as we speak. I might buy Dell stock in the future, but it's just too risky for me today. It might be a long way to the bottom.
Further Foolishness:
