Sell, sell Dell, says Wall Street

I have to admit I have a bit of a soft spot in my heart for Dell. It was the first major tech company I covered in a serious way, and I learned a lot about the industry from Dell execs and yes, pr folks. Moreover, I used to love their products and was happy to buy them and recommend them to my friends.

Not any more. Dell has really lost its way, and so far, the return of Michael Dell to the CEO’s chair hasn’t made a big difference. Thursday’s results were very disappointing. Not only because the company missed Wall Street’s expectations by a bit, but because the results show that a company that used to be synonymous with “execution,” is having trouble putting one foot in front of the other.

OK, that’s a little harsh, but I was very surprised to hear what ATR analyst Shaw Wu said about the gross margin miss (18.5% vs the expected 19.1%) that occurred despite a shift to higher margin notebooks: “We find this odd as (Apple) and HP experienced the opposite and our own supply chain checks indicate otherwise. Moreover, Dell’s (average selling prices) were flat to up, indicating pricing pressure wasn’t a big issue,” he wrote.

Shaw said “poor procurement execution” was the main reason for the weak margins. “It is interesting to note that Dell’s costs may actually now be higher than HP and Apple, something that was unthinkable not that long ago,” he wrote in a note to clients.

Think about that. The company that perfected supply chain management can’t handle procurement as well as H-P or Apple. Yikes.

And that follows a year filled with problems, such as the huge battery recall a while back, not to mention evidence of deterioration in quality control and customer service. And don’t forget the big accounting mess. I know Dell has been working hard to fix the customer service problems, but the glitches have really turned off a lot of Dell loyalists, including my family, which had motherboards in two not-so-old Dell machines fail this year. When I took my PC into a shop for an eval, the owner said he had seen at least four or five dead power supplies in Dell Dimensions in just one month. Coincidence? I’d give the company the benefit of the doubt, if there weren’t so many well-documented tales in the consumer mags and around the Web.

So now, I’m writing this post on an H-P Pavillion notebook which has performed flawlessly for months. No surprise then that Dell has lost share to Hewlett-Packard.

The net of all this was a terrible drubbing on Wall Street Friday, the day after the third quarter’s results were announced. Shares were off a horrific 12.79% on very heavy volume (113 million shares vs. the three-month average of about 23 million shares.)

I obviously like technology stocks, but until I see evidence that Dell is getting its act back together, I wouldn’t touch it.

I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net.