Dell Still In Turbulent Waters

According to IDC and Gartner reports, growth in global PC shipments over the previous quarter was not impressive. Reports estimate that global PC shipments of 91.8 million units reported meager 3.2% growth over same quarter the previous year. Gartner had earlier predicted growth of 5.1% for the quarter. HP maintained their lead in the PC market with 5.3% growth over the year to retain a 17.7% market share. Lenovo reported the highest growth at 25.2%, claiming a 13.5% market share and surging ahead of both Dell and Acer. Dell’s 11.6% market share declined 1.4% over the year. Within the U.S., HP was the leader with a 28.9% market share, up 15% over the year. Dell came in second with a 21.9% market share despite reporting a decline of 7.2% over the year. Apple continued to eat into the PC market share and reported impressive 21.5% growth to capture 12.9% of the U.S. market.

Dell’s Financials
Dell’s (NASDAQ:DELL) Q3 revenues fell marginally to $15.37 billion from $15.39 billion reported a year ago and were significantly short of the Street’s projected revenues of $15.7 billion. EPS of $0.54 was, however, ahead of the market’s targeted earnings of $0.47.

Dell’s focus on enterprise revenues showed good results with large enterprise segment reporting revenue growth of 4% over the year to $4.5 billion. Public revenues fell 2% to $4.4 billion, and the SMB segment saw growth of 1.3% over the year to $3.7 billion. The recession in Europe and the slower growth rate of the U.S. market pulled the consumer business down 4% over the year to $2.8 billion.

For the current year, Dell cut revenue projections to estimated growth of 1%-5% over the year, compared with previous estimates of 5%-9% and analyst targets of 2%.

Dell’s Looming Troubles
Apart from slower-than-anticipated PC market growth, the recent flooding in Thailand has hurt Dell. The floods have forced several manufacturing plants and industries to shut down. Thailand is a chief manufacturer of hard drives (HDD) and produces nearly 25% of the world’s hard drives. Dell expects the drive shortage to impact the market till the first quarter of 2012. Analysts estimate that the flooding will impact HDD prices, which already went up 20%-40% in October. The increased prices are expected to translate to higher PC and laptop prices as well.

Dell’s Expanding Offerings
Dell is working toward moving away from low-end markets and low-end products. Earlier this year, they highlighted plans to focus on the enterprise segment through product and service offerings such as those targeting enterprise data centers. In addition, within the consumer segment, they are working toward launching an “ultrabook,” a high-end laptop expected to retail at close to $1,000. The ultrabook is projected to be launched by the end of this year. The company is also expected to roll out an iPad rival, though details of that product are not known.

Dell’s stock is trading at $14.92 with market capitalization is $27.22 billion. It touched a 52-week high of $17.60 in July of this year.

Dell hopes to claim market share from HP, given that company’s recent announcement that it will spin off its personal systems group. In addition, the focus on the higher-margin products and services should help them expand their earnings. Despite the positive outlook, I am still worried about Dell’s missing critical links – a unified OS to serve PCs, tablets and mobile phones, and a strong alliance with a mobile partner. Dell claims to be looking for acquisitions, and with cash and equivalents of $12.89 billion they should be looking at acquiring a player such such as RIMM, which has a market capitalization of $10 billion.