Dell: Facing Death By iPad?

by Tom Taulli | August 17, 2011 9:59 am

In the wake of the recent plunge in the stock market, many investors have been hunting for bargains. After all, the price-to-earnings ratios look fairly attractive, right?

This certainly is true. But the problem is that stocks always can go lower.

Just look at Dell (NASDAQ:DELL[1]). In today’s trading, the stock price is off 8% to $14.58 (the P/E ratio is now a mere 9). Interestingly enough, Dell actually posted a solid quarterly report. Earnings came to 54 cents per share, which was above the Wall Street consensus of 49 cents per share. Adjusted gross margins were 23.2%, and cash flows hit a record of $2.4 billion (there is $16.2 billion in the bank).

No doubt, Dell has been successful at finding efficiencies. That always has been its hallmark.

Unfortunately, this does not mean customers will buy more products. For example, Dell’s second-quarter revenue was slightly below the $15.75 billion estimate.

But the most worrisome thing about the report was the outlook. The full-year forecast calls for growth of 1% to 5%, which compares to the prior guidance of 5% to 9%. This is fairly anemic.

It’s true Dell is suffering from the overall slowdown in the global economy. Let’s face it, governments are cutting back on spending (this is a big part of Dell’s business). At the same time, it looks like corporate executives are holding back on making commitments.

But often, such things are an excuse for poor execution. And this appears to be the case with Dell. Despite its aggressive moves to acquire software and storage companies, the company has shown a lack of innovation.

Consider the tablet business. All in all, Dell’s performance has been a bust as Apple’s (NASDAQ:AAPL[2]) iPad continues to gain tremendous momentum. In fact, it looks like it is taking marketshare from the traditional PC market. Google (NASDAQ:GOOG[3]) tablets likely will add additional pressure.

In light of all this, it is hard to get interested in Dell’s shares — that is, until the company shows it can start making solid products again. At the same time, some caution also should be taken with other big tech companies that rely on PCs, such as Microsoft (NASDAQ:MSFT[4]), Intel (NASDAQ:INTC[5]) and Hewlett-Packard (NYSE:HPQ[6]). If history is any indication, major shifts in technology can mean long-term problems for legacy operators.

Tom Taulli is the author of various books, including “All About Commodities”[7] and “All About Short Selling.”[8] You can find him at Twitter account @ttaulli[9]. He does not own a position in any of the stocks named here.

Source URL: https://investorplace.com/2011/08/dell-apple-ipad-tablets-tech-stocks/

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