- JP Morgan notes Dell Computer (NASDAQ:DELL) is scheduled to report its fiscal second (July) quarter results on Thursday, August 17 after the market close. The company already preannounced a shortfall for the quarter and is unlikely to give detailed guidance. As a result, investors may have to wait until the analyst meeting on September 13 for any incremental catalysts.
The earnings report may reveal some further details on the sources of Dell's current operational difficulties. In particular, it will be important to determine how much of its PC weakness has now spread to the corporate segment from the previously weak U.S. consumer business.
In addition, although the company may not provide much commentary on the issue, it will be important to understand how much of its margin shortfall resulted from a reduction in vendor subsidies from Intel versus incrementally aggressive product pricing. Firm suspects the former played a significant role, which would imply that Dell's pain is not evenly distributed amongst its competitors in the form of competitive pricing.
The health of Dell's enterprise segment is also a key unknown at this time. They fear that the company's current weakness in corporate PCs may hamper its ability to cross-sell enterprise solutions, and if this did not occur in the second quarter, it could represent an incremental risk factor for coming quarters.
The earnings report may reveal some further details on the sources of Dell's current operational difficulties. In particular, it will be important to determine how much of its PC weakness has now spread to the corporate segment from the previously weak U.S. consumer business.
In addition, although the company may not provide much commentary on the issue, it will be important to understand how much of its margin shortfall resulted from a reduction in vendor subsidies from Intel versus incrementally aggressive product pricing. Firm suspects the former played a significant role, which would imply that Dell's pain is not evenly distributed amongst its competitors in the form of competitive pricing.
The health of Dell's enterprise segment is also a key unknown at this time. They fear that the company's current weakness in corporate PCs may hamper its ability to cross-sell enterprise solutions, and if this did not occur in the second quarter, it could represent an incremental risk factor for coming quarters.
JP Morgan continues to believe that major structural and strategic actions are necessary to begin a bottoming process for the stock. These changes should include, but not be limited to the following: substantial changes in business leadership structure; significant refinements to the direct model in the consumer space; restructuring initiatives to lower discretionary spending and product cost structure; and aggressive attempts to exploit the microprocessor industry's profit pool (i.e., a more substantial move to AMD).
Firm notes they doubt that Dell will discuss any of these potential operational and strategic changes in detail on the conference call, as the company's analyst meeting next month may represent a more appropriate forum for these issues.
Dell is trading at 16x calendar 2007 EPS ex-options estimate or 17x including options. They believe pressures on the share price may go unabated until the company takes the aforementioned actions. HP remains their top pick.
Notablecalls: Not actionable but good to know category. May want to cover the DELL short suggested last week.
- Piper Jaffray is positive on Apple Computer (NASDAQ:AAPL) following spending time talking to 16 developers at WWDC regarding their thoughts on the Intel transition one year after it began. While there are some concerns from industry analysts that the Intel transition will negatively impact Mac application development, the firm believes their conversations point to the opposite conclusion. 14 of 16 developers said Windows running on a Mac will positively impact Mac application development. 14 of the 14 developers who have ported an application from PowerPC to Universal Binary said the process was easier than they had expected.
The Intel transition was announced in June-05 and the first Intel-based Macs were released in Jan-06; since the original announcement more than 3,000 applications have been written in Universal Binary. Moreover, since the release of the first Intel Macs in Jan-06, it took Apple only 210 days to unveil the final Intel hardware, the Mac Pro, which was released at WWDC '06.
Firm maintains Outperform and $99 tgt.
Notablecalls: Not actionable but good to know category.
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