Wednesday, November 22, 2006

Dells Next Problem

Dell (Nasdaq:DELL) reported late results and everyone reminded themselves that the numbers are late, preliminary and subject to restatement because of regulatory investigations. Then the market pundits all became very excited about how the numbers have improved and indeed in certain cases there is reason for optimism.

Here is a regular business problem that will probably come home to roost and surprise. Desktop revenue was negative 5%. Market Researcher Gartner states that Dell had their slowest ever PC shipments in the July to Sept timeframe. The company also lost their top spot to Hewlett Packard (HPQ).

Dell indicates they are shifting to higher margin products. Watch for write-downs and impaired valuations in the very near future. Management might as well fix the books and get this very large bit of bad news behind them, while all the other problems are swirling around and take a few bounces while investors are still forgiving and hopeful.

One is reminded of a bush pilot attempting a take off from a dirt air strip that is too short. You may have to bounce the aircraft real hard to gain altitude. The trick only works a few times and there is no time for parachutes.