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Great Expectations Nothing New for Dell

Dell (DELL - Get Report) should have little trouble notching its financial goals for the October quarter, a performance that's come to be expected every three months by the investment community.

When the Round Rock, Texas-based company reports third-quarter results Thursday, analysts expect it to deliver on its guidance for earnings of 33 cents on $12.5 billion in revenue. Just meeting those targets would mean Dell posted some pretty impressive numbers, with year-on-year gains of 27% in EPS and 18% in sales.

The payoff for Dell's trustworthiness: Investors have bid up the stock 8% this year, compared with a rise of less than 2% in the Nasdaq.

While there's always the theoretical possibility Dell will stumble this time, it doesn't flub results often, having missed the consensus earnings estimate only once in the past five years.

For its third quarter, the PC and server giant is widely expected to get a boost from a quarterly dropoff in prices on components like flat panel displays, chips, graphics cards and hard-disk drives, noted Credit Suisse First Boston.

Dell also will be aided by relatively strong demand among its enterprise customers, offsetting dimming growth on the consumer side. Corporate PC unit sales rose as much as 13% year-on-year in the third quarter, compared with feebler consumer PC growth of around 7%.

Indeed, sales to businesses accounted for an estimated 85% of Dell's revenue, estimated CSFB.

Comments from IBM (IBM - Get Report), as well as chip suppliers Xilinx (XLNX - Get Report) and Altera (ALTR), likewise indicate a fairly robust corporate appetite for PCs and servers.

But slowing growth in the consumer market could still crimp future revenue. Most analysts believe PC unit sales growth will ebb in 2005, especially in the U.S.; Sanford Bernstein analyst Toni Sacconaghi thinks the trend could prompt cuts in Dell's earnings estimates.

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