Fresh off Gateway's gloomy holiday sales outlook, Dell received a pair of analyst downgrades that sent its shares reeling. Computer sales are off, no question, but the downward revisions may come as a surprise to those who saw Dell expanding into more lucrative product lines. Macro matters don't always apply.
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Salomon Smith Barney and Lehman Brothers downgraded Dell this morning, citing industrywide weakness. The irony here is that Dell had already been making headway in distancing itself from the sluggish desktop sector and embracing the more attractive storage and server segments. (We examined the sector in our November Internet Report on network storage.)
There, margins are not only wider but the valuations and market sentiment are also more forgiving alongside peers such as EMC (NYSE: EMC) and Sun Microsystems (Nasdaq: SUNW).
Earlier this month the company reported third-quarter results in which half of all revenues and a majority of the operating profits came from corporate pursuits beyond the PC business, such as enterprise products, notebooks, and services.
It's not as if Dell is neglecting the desktops. Just yesterday, the company revealed that it teamed up with Microsoft (Nasdaq: MSFT) to have MSN's Internet access branded as a free year of DellNet to new computer buyers. It's a win-win situation that helps MSN.com get into more homes while providing a better value for computer shoppers without needing to slash desktop prices.
Slashing prices? Leave that to the market and its shakers.
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