Dell Shock Corporate Earnings Report
Companies / Corporate Earnings Aug 28, 2012 - 05:53 AM GMT
The latest corporate earnings results from Dell Inc. (NASDAQ/DELL) were quite shocking, as the firm dramatically cut its full-year forecast. Technology stocks have always been under heavy competition, but it appears that Dell is losing its touch at driving corporate earnings growth rates.
Dell is fighting against a whole new level of technology stocks. Competition is coming not just from other PC makers, but now tablet makers as well. We’ve all seen the massive surge in “iPads” purchased from Apple Inc. (NASDAQ/AAPL) and this landscape of technology stocks encroaching into each other’s territory will continue.
While Dell is having a hard time maintaining corporate earnings, technology stocks like Apple are increasing them. The reason is that product innovation is driving consumer tastes and, ultimately, corporate earnings.
With a forecast of decreasing revenue and a much-lowered corporate earnings level, the company needs to adjust its business structure. The company did cite that a possible reason for the slowdown was a lull in buying, as people await the new Microsoft Corporation (NASDAQ/MSFT) “Windows 8” operating system.
Part of the solution, according to Dell, is to cut costs. I think the firm needs a bolder strategy to compete against other technology stocks. Generating corporate earnings in this heavily competitive marketplace is not easy, and I don’t see how Dell will all of a sudden regain its old form.
Chart courtesy of www.StockCharts.com.
While some technology stocks like Apple are hitting new highs, Dell has languished near the bottom. Since the spring, any time the market has shown any life, sellers have dumped shares into the market. With the corporate earnings forecast now slashed, it will be difficult for the stock to move up unless management comes up with a realistic plan to compete against the other technology stocks.
Technology stocks in the PC market are essentially commodity products. The way these technology stocks can increase corporate earnings is to differentiate themselves from the crowd. Apple is an obvious choice as the leader in creating unique products, at least from a marketing point of view. With more technology stocks offering tablets, the PC market is becoming increasingly fragmented. Under such stress, I would caution investors not to jump in too soon. Unless there are evident signs of a turnaround in the decline of Dell’s corporate earnings, I would avoid the stock and look to other technology stocks. It’s always dangerous trying to pick a bottom, and with the heavy competition they’re under, it’s far too soon to step in and buy.
By Sasha Cekerevac, BA
www.investmentcontrarians.com
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