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Dell (NASDAQ: DELL) Earnings Report Causes Traders To Dump Stock Before The Bell - Fred Dunsel (02/22/12)

 February 22, 2012 01:39 PM

Dell Inc. (NASDAQ:DELL), which reported its quarterly results after the market closed this Tuesday, closed at $18.16 last Friday, marking a 2.3% gain for the week. The company giant's stock is currently up 23% for the year. It is trading down over 7% from yesterday's close in pre-market action.

Dell reported a profit of 43 cents a share, for the fourth quarter ended Feb. 3, which was down 48 cents, from the prior year.

This was a big disappointment, because analysts were expecting Dell to come in with earnings of 51 cents per share. They also were projecting earnings of $2.13 per share for the fiscal year. Revenue was expected to be $15.93 billion for the last quarter, 1.5% higher than the year before. Annual revenue is expected to be around $62 billion.

[Related -5 Key Takeaways From International Business Machines Corp. (NYSE:IBM)Troubles]

The declining profits have been attributed to several factors. Firstly, like other PC companies, Dell was also affected by the disk-drive shortage in the aftermath of floods in Thailand last year. Secondly, the continuing economic uncertainty in Europe has depressed PC demand there. Thirdly, Dell remains in a tough competitive position as it is sandwiched between lower-cost players such as Lenovo and Acer, and higher-end ones like Apple which is also encroaching more in its core PC business with Macs and iPads. Fourthly, the company's reliance on government sector technology purchases, which make up about 28% of its revenue, is a cause for concern in an era of budget tightening.

Given the above, while most analysts still rate the company a "Buy", there are also growing doubts about Dell's continued profitability. Last week, Sterne Agee's Shaw Wu downgraded it to "Underperform" from "Neutral", with a 12-month price target of $15. Wu cited the company's large exposure to the weak PC market, as well as the fierce competition within the PC industry. Referring to the recent stock price surge, Wu noted that "we believe investor sentiment on Dell shares has gotten too positive and arguably complacent." In addition, Standpoint Research analyst Ronnie Moas also downgraded Dell from "Buy" to "Hold", noting that the current stock price "may be near fair value."

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