Slate has an interesting article that addresses why technology sector overachiever Dell is getting kicked in the teeth by the markets. In Is Dell Dying? – What’s wrong with America’s greatest computer company Daniel Gross outlines the following factors:
- Quarterly results released on August 11, 2005 showed growth of 15 per cent versus 16 – 18 per cent projected numbers
- Over the past five years Dell’s stock has underperformed the NASDAQ and only kept pace with the S&P500
- Dell had a large amount of bad publicity form a well read blogger who complained about the bad customer service experience that he had received
- Dell is having to jump a continually higher fence. Maintaining 18 per cent growth in a company that large and in a market of continually declining margins
- Dell is relying on new markets like China for growth that are less recptive to the companies magic sauce
- Dell is in a mature marketplace and has tried to branch into new fiercely competitive markets for hot consumer electronics products.
This too is unlikely to give the same growth numbers, it looks like Dell will have to support its share price via share buy backs or a dividend like grown-up companies do.
What the article fails to address is the vacuous nature of consensus numbers on predicting profit. For more information on this concept in more depth read here and get Alex Berenson – The Number from Amazon.