All through 2006, erstwhile "growth stock" Dell (NASDAQ:DELL) did nothing but report contracting earnings. Will 2007-08 be different? We get our first clues Thursday afternoon, when Dell reports its fiscal Q1 2008 earnings.

What analysts say:

  • Buy, sell, or waffle? 29 analysts follow Dell, giving it 14 buy ratings, 13 holds, and a pair of sells.
  • Revenue. On average, they expect to see quarterly sales slump 2% to $13.95 billion.
  • Earnings. Profits are predicted to fall 21% to $0.26 per share.

What management says:
The biggest news-that-really-isn't of this past quarter concerned the ongoing internal investigation into Dell's accounting problems. In March, the Audit Committee of the Board of Directors "identified a number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment." It is not yet known whether these errors, apparent misconduct, and deficiencies will result in the restating of past earnings reports -- but I'm betting they will. What is known is that until Dell gets its financial house in order, it won't be filing any audited financial statements. Shareholders are now down two missing 10-Qs and one tardy 10-K.

The good news? Nasdaq proved its impotence once again in April when it responded to Dell's failure to release a 10-K on time by issuing only a "Staff Determination letter ... indicating that the company is not in compliance with the NASDAQ continued listing requirements." As Dell has previously announced, Nasdaq will permit the computer titan to remain listed, and doesn't plan to take any real action against it. Surprised? You shouldn't be.

What management does:
Meanwhile, as we await the audited results of the last nine months of business, early indications are not good. Based on the firm's preliminary results as expressed in a March earnings report, rolling gross and net margins rejoined the operating results in tumbling downhill last quarter.





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Two Fools say:
Dell still remains an active recommendation at both Motley Fool Inside Value and Motley Fool Stock Advisor. Both newsletters updated subscribers on their feelings about Dell in April, so let's take a quick look:

At Inside Value, analyst Michael Olsen tapped the Audit Committee's discovery of "evidence of misconduct" as the big news of the quarter. However, Michael calls this "discovery" unsurprising, observing that "Dell's warranty accruals haven't quite matched underlying growth to warranties and the other assets balance sheet item is decidedly opaque (we can only account for half of its underlying value) and growing rapidly."

Stock Advisor lead analyst David Gardner agrees with Michael on the big issue, exclaiming: "Boy does that ugly word 'misconduct' hang heavy." David then goes on to clarify that: "There are concerns about the company's reserves accounting -- particularly as it applies to warrants -- which boils down to fears that it has inflated earnings." Also unsettling is the shareholder-initiated lawsuit alleging that management "manipulated its accounting" to facilitate the kinds of kickbacks that AMD (NYSE:AMD) alleges Intel (NASDAQ:INTC) paid to secure Dell's business.

Get all that? And we thought it was just the accounting that was complicated! Still, in the final analysis, the newsletters are sticking with their recommendations, and continue to love the firm's direct sales model -- but I have to wonder whether the new partnership with Wal-Mart (NYSE:WMT) will change that. I expect both newsletters will have more to say about this partnership when six-month reviews come due. Take a free trial of the newsletter of your choice, and you'll be first in line to see their thoughts on the new direct-plus-retail business model.

  • Free trials to Inside Value can be claimed here.
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Fool contributor Rich Smith owns shares of Intel. The Motley Fool has a disclosure policy.