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Thursday, August 17, 2006

Dell Meets Lowered Targets; Shares Lower on SEC Note

Dell (DELL) posted $14.1 Billion in revenues and EPS of $0.22, in line on EPS estimates and a tad higher than the lowered revenue target. There are a couple of items, and that is that the company is going to spend $50 Million to $150 million this year to improve customer sevice (they need to!) and also the SEC has sent a request for information on the company's revenue recognition policy.

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, Dell chief executive officer. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."

Dell did confirm the expanded AMD (AMD) processor relationship, which we and most others expected.

Here is what the company said regarding the SEC issue:

In August 2005, Dell received notice from the U.S. Securities and Exchange Commission that it was conducting an informal investigation of the company. The notice stated that the investigation is not an indication that any violations of law have occurred. The SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years, and Dell has been cooperating. In the course of responding to the requests, the company recently discovered information that raises potential issues relating to certain periods prior to fiscal 2006. While the company does not believe that these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company's audit committee, upon the recommendation of management, has initiated an independent investigation. Management is committed to addressing any questions, concerns or issues the SEC or the audit committee may have.

The reason the company is being punished is that this says "In August 2005, Dell received notice from the U.S. Securities and Exchange Commission.....". Ok, now this is one year later if that isn't a typo. That is not a good idea in the days of supposed Full Disclosure.

Dell is trading down at $21.85 in after-hours trading.

Jon C. Ogg
August 17, 2006
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