Dell gave the market a shot in the arm this morning by announcing that it is still comfortable with its revenue and earnings guidance for the next quarter. The company appears to be running smoothly in the PC business, but it is shifting more resources to the enterprise products and services business it hopes will drive long-term growth.

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By Dave Marino-Nachison (TMF Braden)
April 5, 2001

As the low-cost provider in the PC space, Dell Computer (Nasdaq: DELL) is likely in the best position to profit from the current difficulties both in the economy and in the industry itself. If the company's numbers can be believed, the strategy is paying off.

The company said in a news release last night -- it issued the information in advance of a meeting with analysts today -- that it stands behind current fiscal first-quarter (ends May 4) guidance of $8 billion in revenue and $0.17 earnings per share, though it also expressed "caution that more than four weeks remain in the quarter and the market is still unpredictable." Dell continues to refrain from looking much farther into the future.

"Current softness in industry demand and profit margins is not a secret," said Chairman and CEO Michael Dell in a prepared statement. "But in this environment, the differences between Dell and other major companies are compelling. The products and services we offer are in high demand, our costs are the lowest in the industry, and we're passing rapid component cost declines to customers faster than any company."

Given a lack of more detailed data, it's difficult to get too excited about the news -- though the fact the company maintained both revenue and net income guidance does suggest that it is withstanding margin pressure for now. Dell also believes that it continues to pick up market share in this environment, something well-run leaders can do in down times. Whatever the company may announce when it releases full results, investors were heartened today: The stock is up more than 10% in morning trading.

News services, meanwhile, are giving Dell much of the credit for the market's early upward move today. And competitors, such as Hewlett-Packard (NYSE: HWP), Compaq (NYSE: CPQ), and Gateway (NYSE: GTW), got nice pops as well -- the latter a day after reports that the company paid more than $13 million in severance to several departed execs. (For more on this sector, visit our Computer Hardware: InDepth area.)

It's this sort of news that lends further credence to the notion that, despite a stated interest in strategic acquisitions -- we reported on comments to that effect from Dell exec Kevin Rollins yesterday -- a buy of one of its competitors in the PC space seems increasingly unlikely. Staying atop an apparent transition away from desktop PCs to more flexible means of accessing applications will be difficult enough without having to integrate a large company in that business.

More likely might be another move into the storage business, where Dell anticipates more growth down the road. (Vince Hanks' recent look at Compaq's progress in the storage space should shed more light on the subject.) Chairman Dell today said the company is shifting more of its research and development resources toward enterprise products and services, and acquisition dollars may follow suit.

Dave Marino-Nachison's little Powerbook can be frustrating at times, but it gets the job done. His stock holdings can be viewed online, as can the Fool's disclosure policy.

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