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Why the Reinvention of Dell Is Worth a Look

Tim Brugger
August 22, 2012

At best, Dell's (Nasdaq: DELL  ) fiscal 2013 second quarter is forgettable. At worst, it's downright depressing. Based on the drop in share price following Dell's Aug. 21 earnings announcement, investors are leaning toward the latter. But for long-term value seekers, the decline in stock price is ideal, for a number of reasons.

A quick recap
On a GAAP basis, Dell's quarterly net income of $732 million is an 18% decline compared with Q2 fiscal 2012. Earnings are down 13% from last year's $0.48 per share, and operating income is also heading south. The 8% drop in revenue because of slow PC demand is to blame.

GAAP numbers provide good, apples-to-apples comparisons for investors considering buy, hold, or sell strategies since all costs, including one-time items, are included. For Dell, as it prepares to close its sixth acquisition of the year designed to broaden its enterprise business lines, non-GAAP results are also worth a look. Even after removing acquisition and settlement costs -- something non-GAAP reporting allows for -- Dell hardly killed it in Q2, but it does help to put things into perspective.

Non-GAAP net income, earnings, and operating income are down vs. fiscal 2012, too. Hey, the PC market is what it is. But the 13%, 7%, and 15% declines (respectively) on a non-GAAP basis are a bit easier to swallow, and arguably a more accurate measure of Q2 results considering Dell's acquisition activity.

Time to move forward
If you follow the industry, you know Dell's Q2 isn't surprising. One of Dell's primary competitors, Hewlett-Packard (NYSE: HPQ  ) , is having an even tougher go of it. HP's share price is down nearly 23% year to date (Dell is down 21%) as it struggles with declining PC sales. Like Dell, HP is trying to reinvent itself and is likely to get there. The difference is Dell's already showing signs the strategic shift is working.

In some respects, the model for Dell is IBM (NYSE: