Dell: Stock Swoons on Gross Margin Miss

Published on August 29, 2008
by Eric Savitz

This morning, the market is suffering in Dell (DELL) hell.

Last night, the company posted results for its fiscal second quarter ended July, which beat the Street impressively on the top line, but at the cost of lower-than-expected gross margins, resulting in a miss at the EPS level. The Street commentary this morning is mixed: Quite a few analysts contend this is a temporary issue, that the company knows it got overly aggressive on pricing in Europe generally–on notebooks in particular–and can fix the issue quickly. But others contend that Dell’s turnaround has taken a giant step backward. They worry that there is more trouble ahead and note the company’s warning that IT spending is showing signs of slowing not only in the U.S. but also in Europe and some countries in Asia. The results didn’t change a lot of minds on the stock overall; the one downgrade of the stock I spotted came from Standard & Poor’s analyst Tom Smith, who cut his rating to Hold from Buy, asserting that with “unsteady margin patterns” likely to continue, it is time to “take a less aggressive stance.”

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