I remember when Dell could do no wrong. Every where you went was a Dell computer laying around or sitting at a desk. But then they became the Charmin of the toilet paper world. What I mean by that is everyone uses a computer but very few brands stand out to the point where anyone can tell what kind they are using ie a commodity. Despite selling millions of computers they just started to blend in. In my opinion they “jumped the shark” when they rolled out the plasma tv’s. The tv’s really had no impact on what’s happened to Dell, they just happened to come out at the top of the hill in the rise and fall of Dell. Last year was the first year of the fall. HP is on the comeback and it was noticed by consumers and traders. HP stock was up 38% and Dells’ down 28% in 2005. Analyst have reviewed the prospects and 7 have cut their ratings. We all knew they couldn’t keep up the 15% growth for very long as there are only so many personal computers to sell. Secondly you can only promote low end computers so much. If you spend too much, a low cost computer becomes a giveaway. There are many people that want to compete in the cheap computer and Apple dominates the high end, high margin computer area. In order to keep the growth Dell needs to ramp up sales in non-computer items like printers and storage. Anyone you know have a Dell printer? They tried to sell tvs but there is no way they can compete with the manufacturers themselves. So where does that leave Dell and their future? Somehow they need to find a product other than a computer than catches fire. The money needs to go into R&D to find these products. They need to become as popular in the corporate server world as they were in the personal computer world. Dell has lost the buzz with consumers and it is going to get worse if they don’t find some new products. They need to continue to bring out innovative computers and concentrate on customer service. Dell knows they have to change some things. According to Amanda Cantrell of CNN “in an e-mail to employees, CEO Kevin Rollins said Dell’s second quarter was a “wake-up call,” and he outlined a plan to get Dell back on track. That plan included shifting Dell’s product mix to more higher-priced PCs, servers, storage and services”
Is this enough to hold off the vultures? It should be. Ten percent growth is fantastic for a company this size and the stock is a good value at the present price. I don’t think we’ll ever see 15% growth again but the quarter coming up is going to tell a lot about Dell. 10% is the magic number for me. Over and the stock climbs, under and the stock drops. I think the computer sales will increase but at a much slower rate. The overseas market has good potential but they won’t make nearly the headway into China as they did here in the states. So in summary, Dell has plenty of work to do in the next 2 years. I think these years will define the company to see if it becomes the next IBM or the next Gateway. If I owned the stock I would wait to see how it turned out but I would not be buying any new stock for my portfolio. I myself think there are many better investments in the stock world and tend to pick companies like Apple which have better upside potential and much less risk(yes I know Apple dropped 23%).