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Dell May Start to Show Some Promise

Dell
AP
Dell

As Dell prepares to release its earnings Thursday, there's a strange thing happening around this company: Could this company be showing new signs of life even as competition in every one of the markets it serves begins to heat up?

The short answer is yes.

Dell is caught up in what could become a groundswell of tech spending, and after years of so many missteps that threatened its very future, the company seems positioned well to take advantage of all this growth. Everything from PCs to servers, even healthcare thanks to its recent acquisition of Perot Systems, and smart phones.

For the company's fiscal third quarter, analysts expect 28 cents on $13.2 billion. On a product and division basis, it should break out this way: $3.19 billion in desktops; $4.1 billion in mobility; $1.43 billion in servers/networking; $564 million in storage; $1.26 billion in services; and $2.43 billion in software/peripherals. Non-GAAP gross margin should be 18.2 percent; and operating margin should be around 5.5 percent.

Key things to listen for on the conference call: any commentary on Dell's wireless plans. At CTIA in San Diego several weeks ago, I interviewed AT&T's Ralph de la Vega who confirmed to me that his company would be supporting Google's mobile Android operating system. Then, a few minutes later, the Wall Street Journal reported that Dell was preparing for the US release of its Android-powered smart phone on the AT&T network. Still no release date on that product, but it looks like Dell is moving ahead with plans in China, Brazil and soon the US for this device. No question it's a crowded field, and Dell is quite a Johnny-come-lately to the party, but you don't get until you try, and Dell's gonna try.

Then there's all the action on the enterprise. Hewlett-Packard's nearly $3 billion for 3Com may have taken Dell off guard and could actually spur the company to do a deal, though far smaller, on its own. IBM is apparently on the acquisition hunt as well as the server market and telecom continue to heat up. Is Brocade in play? Juniper? I've addressed this before, but with HP and Cisco flush with cash and doing lots of deals, IBM and Dell can't afford to stay still as the industry consolidates around them. And Dell certainly can't afford to stand around looking for a chair with the music about to stop. There are precious few strategic options for Dell if the company wants to take advantage of the server-spending boom. Maybe F5? Radware? Both of them seemed to be passed over by HP , but that might make them more price-attractive to Dell?

Rival Hewlett-Packard reports its earnings on Monday and while the company did pre-announce the day it disclosed its plans for 3Com , its commentary on the quarters and year ahead will also be important to the Dell story. It would seem that Dell would be a prime beneficiary of the rising enterprise tide. Dell had a nice run earlier this year and continues to outperform the broader market, but not by much, and certainly not recently. Since last quarter, Dell's up only about 2 percent against the Nasdaq's 9 percent increase. But since the beginning of the year, Dell's up 56 percent, and the Nasdaq's up 40 percent.

Meantime, there is a feeling that unless the commentary on the call is particularly positive, these shares are unlikely to move much. I'm not sure about that. Strong numbers on their own might spark a relief rally of sorts, and give investors the kind of reassurance they've been hoping for that Dell is back and preparing for bigger and better days ahead.

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