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Monday, September 11, 2006

Dell Tries To Show The Flag

Stocks: (DELL)(AAPL)

Based on a report by Reuters, Michael Dell gave a speech in Austin, Texas in which he tried to paint a future where PCs would play an increasing role in the online gaming market. Unfortunately, the picture was not terribly impressive.

Dell pointed out that online gaming would be a $4 billion industry by 2010, as broadband allowed more and more gamers to use the internet as their playing platform. Dell actually owns a computer company that builds computers for gamers.

The flaw in Dell’s logic is obvious. Dell has revenue of almost $60 billion a year. If gaming will be a $4 billion industry by 2010, it must be much less than that now.

Even if investors want to argue that Dell will get 50% of the PC gamer market, at this point that is likely to be less than $1 billion rising to $2 billion in four years.

Dell will need to deal with its problems today and not hope that a relatively small segment of the PC market will help it half a decade from now.

After Dell’s last quarter when the company disappointed Wall St. with anemic revenue of $14.2 billion and income of $762 million, Dell needs a fast fix. Since revenue is not growing and companies like Apple are introducing attractive new computers, Dell may have to look to the cost side of the equation to improve its fortunes with investors. With its stock caught in a narrow trading range around $22, Dell needs more than hope that a small industry like online gaming will come to its rescue.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.
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