Woe Is Dell

While Dell could end up paying a fine of a couple million dollars, one investor said he doesn't think the investigation indicates a big Enron-esque fraud case.

"I think all companies ought to be investigated periodically just to let them know that the cops are around," says Legend Financial Advisors President Louis Stanasolovich, whose firm doesn't have a position in Dell.

But while he may not be spooked by the investigation, Stanasolovich doesn't see any reason to buy Dell shares at the moment, given the various challenges facing the company.

One of those challenges involves Dell's ongoing struggle to find the right balance between sales growth and margins.

Dell blamed some of its margin pressure in the second quarter to component costs which didn't come down as much as the company expected.

Deutsche Bank analyst Chris Whitmore, however, says that Dell's description of component costs are contrary to what companies like Hewlett-Packard(HPQ Quote), Seagate(STX Quote) and Western Digital(WDC Quote) have reported. What's more, with Intel(INTC Quote) and Advanced Micro Devices(AMD Quote) engaged in a price war, microprocessor prices have been declining.

The real culprit for Dell's increased component costs, contends Whitmore, was its decision to two-time Intel after using Intel processors exclusively for years.

"Although management would not comment on its relationship with Intel, we believe Dell likely lost significant 'co-marketing' dollars from Intel this quarter, either as a result of Dell's decision to start using AMD processors, or resulting from AMD's lawsuit against Intel," said Whitmore, whose firm makes a market in Dell shares and has provided Dell with noninvestment banking services in the past year.