A 360-Degree Review of Dell Ahead of Earnings (DELL, HPQ, GTW, STX, VMW)

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Dell Inc. (NASDAQ:DELL) will post earnings after the close this Thursday and analysts, according to First Call, have estimates at $0.30 EPS and $14.63 Billion in revenues for the past quarter.  The coming quarter is expected to have $0.33 EPS and $15.1 Billion revenues.  Dell recently said it had completed its own internal investigation and reviews, and it would be filing all of its past financial statements with the SEC.

Dell gave last preliminary numbers on May 31 and shares had closed at $26.91 on that day.  So at $27.20 this morning shares are up roughly 1% since then.  Shares have recovered off recent lows with the market but are basically in the middle of a trading range of $26 to $29 since last earnings.

The chart has looked weak since July, although that coincides with the weak market as well. H-P’s stock chart has also been range-bound since mid-July.  Options can be tricky a day before an event, but it appears that as of today that options traders are braced for a move of up to $0.95 to $1.05 in either direction.  Keep in mind those numbers can change tomorrow and are arbitrary since it is a static snapshot this morning that takes no recent history into consideration.  Wall Street analysts still have the stock price targets north of $32.00.

Its chief rival, Hewlett-Packard (NYSE:HPQ), just beat earnings expectations and gave the all-clear signal ahead for guidance.  To top it all off, Seagate (NYSE:STX) just raised guidance on ‘strong pricing trends in hard drives’ and that is not a normal event.  Neither event signals a weak PC-market at all.   Dell has seen some problems causing delays in recent days, so the company will likely need to be specific on shipments ahead.

A development that has come up is the Acer acquisition of Gateway (NYSE:GTW).  Dell may address this as ‘stronger competition out of Acer,’ but for whatever it is worth Gateway itself being considered a competitor in the industry has been a moot point for years.  Acer is a more formidable competitor, but Acer and Gateway are already on major retail chain shelves right next to each other.  Based on how little coverage this acquisition has been given it won’t probably be a huge threat.

The last couple of items are important, but may be further out than this and next quarter.  At some point the company will be able to resume its share buybacks since it is now going to be current in SEC filings.  The SEC investigation will keep a cap on that for the time being, but it could be telegraphed as far as an intention.  The other issue is if Dell wants to be a stronger acquirer.  It has made some smaller deals, but it will be interesting to hear if the company plans to transform itself to compete on more fronts against H-P.  That is still an outstanding issue. 

A term will probably start being used more and more after tomorrow…….Virtualization.  Both Dell and H-P already have strong virtualization pacts with VMware (NYSE:VMW), and this market is only going to get bigger.  Much bigger.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.