Dell's Baby Steps (DELL)
Dell (DELL) announced two initiative recently that show how desparate the company is to create any positive news. The company launched a new IT service plan called Platinum Plus. With this program, companies can use Dell to support their computers, whether they bought them from the PC giant of not.
The other news is that Dell will begin to ship computers with Advanced Micro Devices (AMD) chips.
Both of these initiatives are aimed at Dell's corporate customers. The IT service plan is only useful to big companies, and most consumers cannot tell the difference in performance between an AMD or Intel (INTC) powered product. It might be important to some corporate IT managers.
But, Dell's most significant problem recently is the sales of its computers to consumers, not corporations. The company has also fallen short on customer service which has encouraged the company to hire a new head of customer service.
Dell is betting big on the corporate market, but it may be the wrong gamble.
In the quarter ending May 5, 2006, operating income actually fell to $949 million from $1.174 billion in the same period a year ago. Operating income in the Americas and Europe was hit hardest, but the increase in Asia, up only $3 million from last year to $136 million, was embarrassing given the company's push in China.
In the quarter, enhanced services like training and enterprise support were 10% of Dell's revenue, and this business is growing. Servers and networking were 9%. But, these lines of business which are primarily for businesses are still too small to have a marked impact on the company's topline and operating income.
The problem at Dell is simple. Desktop PC sales are dropping. They were 36% of revenue in the May 5 quarter down from 40% a year ago. Laptop computers, which are now 26% of revenue, picked up some of the desktop drop, but the business needs to turn itself around.
Dell can open all the new enterprise initiatives it wants to, and move from one chipset to another. Until customer service improves, and the cost of PCs stops dropping like a stone, Dell's stock is likely to stay near its 52-week low.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.
The other news is that Dell will begin to ship computers with Advanced Micro Devices (AMD) chips.
Both of these initiatives are aimed at Dell's corporate customers. The IT service plan is only useful to big companies, and most consumers cannot tell the difference in performance between an AMD or Intel (INTC) powered product. It might be important to some corporate IT managers.
But, Dell's most significant problem recently is the sales of its computers to consumers, not corporations. The company has also fallen short on customer service which has encouraged the company to hire a new head of customer service.
Dell is betting big on the corporate market, but it may be the wrong gamble.
In the quarter ending May 5, 2006, operating income actually fell to $949 million from $1.174 billion in the same period a year ago. Operating income in the Americas and Europe was hit hardest, but the increase in Asia, up only $3 million from last year to $136 million, was embarrassing given the company's push in China.
In the quarter, enhanced services like training and enterprise support were 10% of Dell's revenue, and this business is growing. Servers and networking were 9%. But, these lines of business which are primarily for businesses are still too small to have a marked impact on the company's topline and operating income.
The problem at Dell is simple. Desktop PC sales are dropping. They were 36% of revenue in the May 5 quarter down from 40% a year ago. Laptop computers, which are now 26% of revenue, picked up some of the desktop drop, but the business needs to turn itself around.
Dell can open all the new enterprise initiatives it wants to, and move from one chipset to another. Until customer service improves, and the cost of PCs stops dropping like a stone, Dell's stock is likely to stay near its 52-week low.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.
posted by douglas mcintyre at 12:10 PM
Subscribe
<< Home