By Trefis.comDell ( DELL), the third-biggest player in the global PC market after HP ( HPQ) and Acer has lately suffered an onslaught of bad press over a lawsuit alleging that it knowingly sold faulty PCs to corporate clients. Dell has so far maintained that it did not intentionally deceive its customers and that it took reasonable steps to compensate them for losses resulting from the defective units. Even so, the resulting damage to Dell's reputation could seriously affect the company's hardware business, which recently started picking up. In the worst case, we estimate that Dell's legal woes could cause an approximately 20% downside to the Trefis price estimate of $17.34 for the company's stock. Below we trace the potential impact of Dell's deteriorating brand image on its various product lines.
Dell's Notebooks, Desktop Sales Could SufferIn the most recent quarter, Dell reported a recovery in its corporate PC sales as companies replace their aging computer hardware. Dell recently projected a 14% to 19% growth in its FY 2011 revenues over fiscal year 2010, citing increased enterprise demand as the primary reason. As a result we expected Dell to maintain its 15% share in the global desktop market this year and increase its global notebook share from 13% in 2009 to around 14% in 2010. But because of Dell's legal problems, many customers may now choose to buy their hardware from HP or other competitors. You can modify the Trefis forecasts in charts below and see that a decline of 3% share in Dell's notebook and desktop market share will result in a downside of about 14% for its stock price.