Little Leeway for Dell

Dell(DELL Quote) set the bar low when it initially delivered its guidance for the first quarter.

Now that Dell has warned it will be unable to meet even this lackluster financial target, the sense on the Street is that something is broken at the world's No. 1 PC maker.

How apparent this is to Dell, and what the company proposes to do about it, likely will overshadow any of the results contained in the company's earnings report after the market close Thursday.

"Dell needs to wake up," says David Schamens, a managing member at Invictus Funds, which has no position in Dell. "They really need to re-evaluate what has gone wrong and correct it," he says, suggesting everything from better products to a management shake-up.

The company's stock, which closed Wednesday at $23.63, is near its 52-week low and down 19% since the start of the year.

"It used to be sort of a secret that something wasn't right [at Dell] about a year ago," says Schamens. "Now it is a very open secret."

Instead of earning between 36 cents and 38 cents a share in the first quarter, Dell has stated that it will post EPS of 33 cents. Revenue should come in at $14.2 billion, vs. its previously set range of $14.2 billion to $14.6 billion.

Dell's new sales guidance represents 6% revenue growth year over year -- a pittance compared with the 16% and 21% growth rates that Dell logged in its first quarter during the past two years.

What's more, it's only slightly higher than the growth that Hewlett-Packard(HPQ Quote) generated during the quarter, despite that H-P is working from a significantly larger revenue base. Dell reported $55.9 billion last year in annual revenue; H-P posted $86.7 billion.

Whether Dell can return to its high-teens growth rates is anybody's guess. A maturing PC market and Dell's revenue base make some degree of slower growth unavoidable.

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