Foolish Forecast: How Swell Is Dell?

Someone remind me -- what year is this?

Hmm, well, tell it to Dell (NASDAQ:DELL). When the world's leading seller of direct-to-buyer PCs and notebooks reports its earnings news Thursday afternoon, it'll be talking about the third quarter of fiscal 2007. Either somebody's got a crystal ball, or Dell's about a year ahead of the crowd (accounting-wise, at least).

Just kidding, but that serves as a reminder that fiscal accounting years are determined by the month in which Q4 wraps up. For Dell, that means late January/early February.

What analysts say:

• Buy, sell, or waffle? Twenty-nine analysts follow the company -- one more than archrival Hewlett-Packard, so at least Dell's winning one contest (the popularity one). Or not. Only seven of these learned souls rate this a buy; 19 more say hold; and three counsel selling.
• Revenues. On average, they expect to see 4% sales improvement to $14.4 billion ...
• Earnings. . but a 38% drop in profits to $0.24 per share.

What management says:
In September, Dell received the expected notice that it is subject to delisting from the Nasdaq. Why? The (sadly) usual reason: The company is being investigated by the SEC, and can't file last quarter's 10-Q until it allays the regulator's concerns over "certain accounting and financial reporting matters . including issues relating to accruals, reserves and other balance sheet items that may affect the company's previously reported financial results."

The other big, bad news of the quarter came out just last month. No sooner had management boasted in its Q2 report of achieving "a record, industry-leading global share of 19.3 percent with units up 6% for the quarter," than computer market-researcher Gartner reported HP had pulled ahead in the third quarter. "Market intelligence" firm IDC soon elaborated that Dell grew its PC sales only 3.6% in Q3, while crediting HP with a 15.1% increase in sales.

What management does:
After a brief resurgence in the February 2006 quarter, Dell resumed its downward swoon in the margins department. Rolling gross, operating, and net margins have all declined for two quarters straight. Judging from the analysts' ratings, it appears Thursday's news will be no different in this regard.

Two Fools say:
Nonetheless, Dell remains an active recommendation at no fewer than two independent Fool newsletters. Both Philip Durell at Inside Value and David Gardner at Stock Advisor continue to like the stock. Although Philip admitted (in his August update) that "the picture looks bleak" at Dell, "for the longer term [he sees] growth in enterprise products (servers, storage, and the like) and developing country revenue and unit growth [becoming] increasingly significant and . offsetting a fairly mature U.S. marketplace."

For his part, David calls this "an extremely solid and well-managed company," and argues persuasively that founder Michael Dell is not going to sit idly by and let his company lose 50% of its value (taking his 10% stake in the firm down with it) without getting involved and righting the ship.

To get the Fool skinny on exactly what else our advisors have to say about Dell, you can take free trials of each publication. Yes, free. Just click here to claim a trial of Inside Value, and here to give Stock Advisor a whirl.

Competitors:

• Apple (NASDAQ:AAPL)
• CDW (NASDAQ:CDWC)
• Cisco (NASDAQ:CSCO)
• Gateway
• Nokia (NYSE:NOK)
• Sun Microsystems (NASDAQ:SUNW)

CDW is a Stock Advisor selection.

Fool contributor Rich Smith does not own shares of any company named above. He's taking an IRS-inspired breather from his Dell ownership until the 30-day wash sale rule is satisfied. Not sure what a "wash sale" is? Feel free to drop by our Tax Strategies board and ask. The Fool has a disclosure policy.