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Monday, August 07, 2006

Everyone Has Advice For Dell

Stocks: (DELL)(HPQ)(IBM)(MSFT)

Recently, Barron’s and Reuters both ran advice columns on how Dell should fix itself. The editors at Barron’s favored improving customer service, making Dell PCs more user friendly like Macs, and opening retail stores. Reuters got opinion from experts that included selling more computers and television and buying competing companies.

If wishes were horses all the beggars would ride. Business magazines may have clever suggestions, but with Lenovo and other Asian manufacturers coming at Dell on the consumer and corporate PC side and IBM and Hewlett-Packard attacking Dell’s server business the fix is not likely to be found in a newspaper article.

Dell simply is not growing anymore. Sales of PCs are slowing. Gartner says total PC sales will be up only 10% in 2006, and most of that will be portable machines. That growth rate would be good in most businesses, but it is well below what the market has experienced in the recent past. Apple is starting to get some of the market, and inexpensive units from overseas are more popular because their quality is now on par with what Dell and other US companies offer.

Because Dell is not growing, the best thing that the company might do is stop viewing itself as a growth stock. Microsoft now pays a dividend. So does HP. IBM does as well.

The Wall St. betting is against Dell being back in a growth mode anytime soon. Over the last 52 weeks, the stock has a high of $40.49. The low is $18.95. The stock currently changes hands at $22.40.

When the market goes against a company, betting against the house is a bad idea. Maybe being a value stock is not such a bad idea Dell has nearly $10 billion in cash and $2 billion in plant and equipment.. The managers at Dell should ask themselves about that.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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