Dell Inc. down in the dumps again, dude

Dell, the PC manufacturer, announced today that it expects a decline in second-quarter gross margins. What's behind the slump?

Blaming soaring component costs and heightened market competition, Dell Inc. today forecast lowered gross margins for the July quarter. Analysts predicted that the popular PC-maker's revenue could edge upward from $12.3 billion to $12.5 billion in the next quarter, but Wall Street remained cool, and Dell's shares quickly sunk three percent.

“We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point," CFO Brian Gladden said in a statement. "In the meantime, we continue focusing our energy and resources on the operating initiatives that will improve the company.”

It's been a rough few years for Dell, a Round Rock, Texas-based corporation which once dominated the PC market. In 2008, the company laid off scores of employees at call centers in Canada, and this January, Dell announced the closure of its manufacturing plant in Limerick, Ireland.

1,900 jobs were lost in all, and the bulk of production work was shifted to Poland.

The company has been struggling to regain the lead in the PC sales market, which it lost to Hewlett-Packard in 2006. It has also been rocked by consumer complaints, and in May of 2008 the New York Supreme Court ruled that Dell and Dell Financial Services "engaged in fraud, false advertising, deceptive business practices, and abusive debt collection practices."

Tightening up the ship

Beginning last year, Dell began jettisoning employees, while pledging to cut its budget by 4 billion by 2011. In today's statement, the company vowed to continue to slice the fat from its budget. Meanwhile, Dell forecasted that sales, in the long term, could grow between 5 and 7 percent annually.

And there is more good mild news, the Dow Jones newswire reported today. "Analysts are still expecting 2009 to see flat to single-digit-percentage lower growth," a dispatch from the newswire said. "But that is markedly more bullish than just three months ago, when some saw a 10% or more drop in annual sales."

Down, but hardly out

In March, Barron's ran a long feature article titled "Dell's Down, But Hardly Out." "Is Dell Dead?" journalist Jay Palmer asked at the beginning of the piece. "Read technology blogs and Wall Street research about the personal-computer seller, and it's clear many commentators are thinking along such downbeat lines. After all, Dell 's business – and its shares – both resemble shrunken versions of their once-glorious selves."

Still, Palmer cautioned, it's far too early to write off Dell. He pointed out that Chairman and Chief Executive Michael Dell had recently returned to help the computer giant, and reported that the company was still sitting on a pile of cash, equal to $5 per share.

"Dell itself could become a takeover target," Palmer wrote, "given its sterling brand, entrenched manufacturing network and not least, that stash of cash. That the patient is under the weather is all too clear. But nearing death's door? Not a chance."


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