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Dell: Are Tailwinds Now In PC Maker's Favor?

It's been a rough year for Dell , characterized by a particularly rough quarter that saw the company try to put deep financial shenanigans behind it: the pay-out of a $40-million-plus severance package for fired CEO Kevin Rollins, trying to deal with a restructuring that cost the company 8,000 jobs, continued loss of market share to rival Hewlett-Packard and shipment problems that hurt its most recent product introductions. Dell's retail strategy seems to be choppy, at best. So it looks pretty dismal.

Ahhh, but look a little deeper. In the face of all that mess, Dell shares actually climbed 10% on the quarter, and several analysts who had been skewering the company now say the worst might be behind it. Bear Stearns, WR Hambrecht, even Think Equity's long-time Dell bear Eric Ross, are coming out to sing Dell's praises.

"Next quarter could actually be much stronger," Eric Ross tells us this morning. "They have done a very good job on servers; servers were a very strong point for them this quarter and continue to be a very strong point for them next quarter."

Positive comments have been few and far between for Dell. The honeymoon return of prodigal founder Michael Dell was short-lived; and since then, the company has been unable to communicate any meaningful strategic plan. That's been a problem for grumbling Wall Street analysts who have been unable to peek behind the Dell curtain of secrecy because the company hasn't forthrightly communicated with investors since its turmoil began. Today, incidentally, will not be much different. Quarterly results will be released at 4:05 pm EDT, and there will once again be no conference call with analysts and media.

But that said, there are some tailwinds stacking up in Dell's favor: The Microsoft Vista upgrade cycle seems to be working out better than expected; AMD's long-delayed Barcelona server chip will be released September 10 and make its way into PC's before year-end, and that could be very good for Dell. Intel's chip prices are falling; memory prices are falling; and PC sales are picking up all over the globe. Oh, and the Acer/Gateway deal effectively eliminates a major source of competition for both Dell and HP as those companies grapple with what are sure to be some complicated integration issues.

It doesn't mean that Dell has figured out a way to compete with HP. Far from it. But Michael Dell himself seems to be injecting new life into a company that has been long-suffering. And despite a nice run these last few months, some analysts believe the company is still terribly undervalued, with many on the Street looking for something toward $35 a share or better.

Still, investors will need a strong stomach for Dell. This is hardly that hockey stick chart (up and to the right) for Dell shares. Tailwinds are beginning to blow, but Dell is still facing a stiff headwind in the form of HP and until Michael Dell sits down with institutions and the media, we'll all be left wondering whether he's loaded a magic bullet in his revolver to turn this company around.

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