Dell Price Cuts Helping Only So Much
Is Dell (DELL) fighting yesterday's war?
That's one possibility that weighed on the shares of the world's No. 1 PC vendor in the wake of its announcement Monday that its first-quarter financial results would once again come up short.
Like a military superpower that can't adjust its tactics to take on a new enemy, Dell may effectively be fielding tank battalions in a confrontation where air supremacy is the key.
Faced with slowing demand and increased competition, Dell unsheathed its most trusted weapon in the first quarter: price cuts.But while the price cuts appear to have taken the expected toll on Dell's margins, they don't seem to have delivered the payload of sales growth. Revenue in the first quarter will come in at $14.2 billion, according to Dell, vs. its previous estimate of $14.2 billion to $14.6 billion. EPS will be 33 cents, compared with the company's earlier projection of 36 cents to 38 cents. In its preannouncement, Dell stated that it had taken pricing actions in the first quarter in order to "accelerate revenue growth in the future." The price cuts' lack of immediate results left many analysts and investors skeptical about the plan. Shares of Dell were down 4.12%, or $1.09, at $25.34 in midday trading Tuesday. "Even with aggressive month-of-April pricing, Dell could do no better than reach low-end revenue targets, raising questions about how successful pricing will be going forward as a sustained way to achieve growth," wrote Goldman Sachs analyst Laura Conigliaro in a note to investors lowering her EPS estimates for the 2006 calendar year. In fact, noted Conigliaro, Dell itself doesn't seem convinced that the price cuts are the solution to its problems. As recently as the July 2005 quarter, she said, Dell blamed overly aggressive cuts for its poor results, adding that the measure wasn't able to drive enough incremental unit volume.
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