Delve Into Dell's Misery

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It looks like Dell (Nasdaq: DELL  ) is falling behind the competition. The third quarter should have been a solid success but came in closer to a limp squib.

Chief rival Hewlett-Packard (Nasdaq: HPQ  ) reports earnings next week, and we don't have any fresh third-party market reports from the likes of iSuppli, or Gartner (NYSE: IT  ) . But I think it's fair to use leading chip supplier Intel (Nasdaq: INTC  ) as a proxy for the computer market, and Dell is lagging far behind Intel's latest reported results.

While Intel reported a 17% jump in sales from one quarter to the next, Dell had to settle for a far less impressive 1% sequential sales boost. At $12.9 billion, Dell's revenue shrank 15% from the year-ago period. The story gets even more sordid on the bottom line, where Intel's earnings moved from red ink to black in the quarter-over-quarter comparison and stayed nearly flat year over year. Dell made money, but at $0.17 per share, it was less than half of the profits seen last year and even a drop from last quarter's $0.24 per share. And if you don't trust Intel as a proxy, IBM (NYSE: IBM  ) told much the same story.

Dell's management pointed out that corporate IT spending is thawing after a deep freeze, which should be good for Dell because the company makes 80% of its sales to commercial enterprises. Business is improving from month to month, and Dell hopes to keep that trend going as businesses start to refresh their technology budgets and adopt the new Microsoft (Nasdaq: MSFT  ) Windows 7 platform.

But none of that can explain why Dell is doing so much worse than Intel, and by extension, compared with the larger computer sector. The only explanation that seems to make any sense is if Dell is losing market share to rivals like HP and Lenovo, not to mention IBM in the oh-so-important enterprise market. So I will expect independent reports and earnings from the other guys to bear that story out over the next few weeks.

Dell's stock is down 10% today. Some might call it a buy-in opportunity, but I think the company deserved this slap to the face. The comments box below can't wait to hear what you think.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He got a new laptop recently, but it's a sweet, sweet Samsung. Sorry, Michael. Dell, Intel, and Microsoft are Motley Fool Inside Value picks. Motley Fool Options recommends a diagonal call on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 20, 2009, at 3:16 PM, alamothe34 wrote:

    A focus on low price wins lots of customers - witness Walmart - but when customers can buy innovative products at or near the same price, they switch. HP took away Dell's price advantage in PC's and added sizzle, winning consumers and businesses over. Dell's venture into printers stalled because once again, it was all about price, not innovation. Dell's server/storage division is having the same experience with HP now. Where can Dell breakout? Until they find a new product/market segment, value prop, they have nowhere to go.

  • Report this Comment On November 20, 2009, at 4:44 PM, WoodyDog1400 wrote:

    Good buy opp....DELL will recover in 2010 and WIN 7 will save them.

  • Report this Comment On November 21, 2009, at 12:33 AM, yeppie wrote:

    Dell is on a slippery slope into the abyss. Not only are they underperforming the rest of the sector, they still have the worst customer service in the industry. Nothing like letting your competitive advantage disappear then on top of it treat the customers that you do have like garbage. I will never buy another Dell because of it and I think I am not alone based on their slipping market share.

  • Report this Comment On November 21, 2009, at 4:33 PM, Clint35 wrote:

    I agree with alamothe34. Dell used to be a leader in sales and quality. But the quality isn't nearly as good as it used to be. I know, I have one and my mom has had two in the last 3 years. I only bought a Dell because it was the cheapest laptop at Walmart. I could've got a Hewlett Packard for only a $100 more. I've heard Packard's are much higher quality. And after one of my mom's Dell's just quit working for no apparent reason, I believe it.

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