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Dell Earnings Preview: Confirmation for the Rally?

Thursday, 29 May 2008 | 12:54 PM ET

DELL (DELL)

One of the world's largest PC makers.

Reports Q1 earnings Thursday 5/29 at approx. 405p ET. Conference call at 5p ET.

Dell
AP
Dell

WHAT WILL MOVE THE STOCK:

COST CONTROL/OPERATING MARGINS - Dell has been working hard to trim costs across the company. Were there further headcount reductions this quarter? What progress has been made trimming input and R&D costs? One place these efforts show up is gross margins. Last quarter, gross margins were 18.8%. Also affecting gross margins:

DEMAND FOR LOW-END COMPUTERS - Margins are much thinner on low-end/lower priced computers. Are consumers and businesses shifting to products that generate less profits for Dell? Watch for signs that average unit selling price is declining (again).

U.S. GROWTH? - U.S. sales made up 60% of Dell's revenues last quarter and domestic growth is a point of concern for some analysts, especially in light of the U.S. economic outlook.

MAXIMIZE OVERSEAS REVENUES - Dell sales grew at 28% annual rate in Asia last quarter, but only 8% in Europe. Can Dell maintain its sales growth?

ESTIMATES:

Q1 EPS down 1% to $0.34, revenues up 7% to $15.683 billion

Q2 EPS up 7% to $0.34, revenues up 6% to $15.594 billion

FY 08 EPS up 15% to $1.51, revenues up 6% to $64.618 billion

Source: Thomson Reuters

Year-ago actuals: Q1 EPS $0.34, Rev. $14.622 billion

*All estimates are current as of 5/29 and subject to change.*

FACTOIDS:

CARTY SWAN SONG - This will be Don Carty's last earnings call as CFO of Dell. On May 19, Dell announced Carty will resign effective June 13 and will be replaced by Brian Gladden, formerly the CEO of SABIC Innovative Plastics (which used to be GE Plastics). Carty retains his position on Dell's board of directors.

END OF A BAD EARNINGS STREAK? - Dell has reported earnings below estimates for the last two quarters. However, it met or beat consensus forecasts for the four quarters before that. You have to go back to Q2 '06 for the last time Dell missed (Dell restated earnings to 1 cent below estimates).

STOCK IS ON A ROLL - Dell shares are up about 8% since last Wednesday and up 19% since mid-April.

...AFTER HITTING A SIX-YEAR LOW - Dell's April low was its worst level since October 2001.

...BUT STILL WELL DOWN FROM RECENT HIGHS - Dell shares traded above $30 last November.

  Price   Change %Change
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