This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Dell Needs Drastic Action

Stocks in this article: DELL HPQ AAPL

Updated from 11:06 a.m. EST to provide additional analyst comments in the second and fifth paragraphs, and updated share price.

NEW YORK ( TheStreet) - Dell (DELL) is set to report earnings after the close on Tuesday, with analysts warning that it needs something drastic to convince investors of its growth credentials.

In a recent research report, Credit Suisse analyst Kulbinder Garcha suggests the company needs a "transformational acquisition," adding that the company needs to transform its profile with investors and drastically change the scope of the business. He notes that management has acknowledged this, but it could prove costly should it choose to take this route.

In 2010, for example, Dell lost out to arch-rival HP (HPQ) in a high-profile battle for storage specialist 3Par.

The Round Rock, Texas-based tech titan has tried to transition itself away from being primarily a PC-centric company, pushing towards higher-margin offerings such as services. Analysts, however, warn that Dell's transition is not going as fast as planned, adding that gross margins may become an issue this quarter.

Sterne Agee analyst Shaw Wu said Dell is seeing companies like Apple (AAPL) gain market share in personal computing. It is also impacted on the lower end by Lenovo and Acer. "We view Dell as a company in transition that needs to take more aggressive steps," Wu wrote in his note. He downgraded shares to underperform with a $15 price target.

Sanford Bernstein analyst Toni Sacconaghi notes that the PC industry is challenged, adding that Dell is likely to report "tepid" revenue growth on Tuesday. "Many investors believe that we are entering a post-PC era, with PC growth likely to be anemic or negative going forward. Against this backdrop, many investors believe that Dell is unlikely grow revenues above or even at consensus's forecast of 1-2% for each of the next two years," Sacconaghi wrote in a research report. He rates shares outperform with a $21.50 price target.

Other analysts question whether the company can keep its gross margins at current levels. Dell's gross margins are currently in the 22% to 23% range, well above their historical level of around 19%. "Management has shifted the company's focus to profit maximization, which is driving EBIT upside against mediocre revenue performance," wrote Baird Equity Research analyst Jayson Noland in a recent research report. Noland recently downgraded shares to neutral, citing a possible headwind from weakness in the public sector, which accounts for about 28% of Dell's revenue.

Credit Suisse's Garcha also believes Dell's operating margins will move lower, as gross margins have likely peaked. "We acknowledge that Dell sees some top line challenges and the company's strategy is clearly to promote and develop its ESS Enterprise Storage and Server offerings (currently 29% of revenues), a mix shift away from PCs toward higher margin servers and networking, storage and services alone will not drive sizeable margin expansion over time," Garcha wrote. He rates shares underperform with a $16 price target.

Analysts polled by Thomson Reuters expect Dell to report earnings of 52 cents per share on $15.96 billion in revenue. Dell competitor HP is also reporting earnings later this week, with some analysts eyeing the tech bellwether as a turnaround stock.

Shares of Dell are up 24.46% year-to-date, besting the 13.3% return over the same time as the Nasdaq.

Dell shares are up modestly on Tuesday, rising 0.43% to $18.24.

Interested in more on Dell? See TheStreet Ratings' report card for this stock.

Check out our new tech blog, Tech Trends.

-- Written by Chris Ciaccia in New York

>To follow the writer on Twitter, go to

>To submit a news tip, send an email to:

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs