It's clear that Michael Dell's honeymoon period is over, and that investors are looking for tangible results from the turnaround strategy he has implemented since returning to his namesake company as CEO. The question though is whether this is merely a dead-cat bounce, or whether Dellis truly beginning to turn things around.
There's little question the company's year-over-year comparisons will be attractive when the company reports earnings this evening; but that's because last year's financial performance was so abysmal. Investors and analysts will keep a close eye on guidance, as well as some key metrics for Dell's fourth fiscal quarter. Most notably, gross margins (which declined in the company's third quarter); operating expenses (which grew in the third quarter); and consumer PC sales (which declined on a year over year basis.) Investors need to see reversals in all three of those categories in order to feel any sense of confidence that Dell's on the right track.
Analysts today will be looking for 36 cents a share on $16.25 billion in revenue. Almost every analyst I'm talking to expects Dell to beat those numbers, and several believe Dell can do so handily. The strong fourth quarter performance comes from a variety of factors, not the least of which is the surprising 15.5 percent jump in global PC sales during the period.
Dell's also embarked on an ambitious retail program, adding Wal-Mart , Staples and Best Buy to its distribution, and aggressively going after the consumer to augment its corporate enterprise sales. NPD says Dell's retail market share jumped impressively from November's 1 percent to better than 5 percent now. Component prices are also falling and that bodes well for the company's margin expansion as long as price discounts the company offered didn't cut too deeply.
But you can't ignore the other big player in the sector: Hewlett-Packard's CEO Mark Hurd just this week re-iterated the company's guidance saying he's comfortable with the outlook. That news may come at Dell's expense and that would be a concern.
Still, Dell is in the midst of a $10 billion stock buyback program, the company is cutting 1,200 jobs--and some analysts say more job cuts will come.
Keep an eye on the company's enterprise business as well, not just as a window into the company, but as a referendum on corporate spending. We've gotten such a mixed picture on this front lately, so it'll be interesting to see what Dell is tracking. Some analysts suspect Dell's server revenue to be down year over year, but storage revenue up.
One thing is for sure: after several quarters of concern and frustration, financial shenanigans and a cloudy future, Dell is becoming interesting again. There are still enormous competitive, micro and macro issues facing this company, and how the company navigates through them--if the company can navigate through them -makes Dell a story worth following again. Finally.