Deutsche Bank: Expect Soft Sales From Dell
The company’s troubles aren’t anything you couldn’t intuitively guess: Consumer PC sales are weak for a variety of reasons, ranging from the popularity of tablets like the iPad to a frail consumer economy, combined with slumping sales to state and local governments facing squeezed budgets. Dell’s strengths: Sales of PCs and servers to enterprises and the federal government.
Even with weaker sales, that mix should allow Dell’s profits to hold up. Whitmore writes in a note to clients: “We expect solid margins due to favorable product mix — healthy corporate demand and softer consumer demand — benign commodity prices and greater contribution from Dell’s higher margin Storage and Server offerings.” Memory chip prices are down by 17 percent and LCD display prices are down 3 percent, giving Dell a little wind at its back from a cost perspective, and possibly offsetting the expected impact from a shortage of hard drives caused by the flooding in Thailand.
Whitmore expects Dell to report sales of $15.6 billion and margins of 22.2 percent, and an operating margin of 7.2 percent, implying per-share profits of 44 cents. Whitmore’s estimates are slightly below the consensus view of analysts’ calls for Dell to report earnings per share of 47 cents on sales of $15.7 billion.
Looking ahead, Whitmore expects Dell to emphasize an ongoing cycle of upgrades to corporate PCs and servers. He expects estimates for the 2012 fiscal year could improve, because right now they “appear conservative.”