Is Dell a tech dinosaur?
Consumer spending, corporate spending and the game-changing iPad are making life difficult for the veteran PC maker these days.
By Jeff Reeves, Editor, InvestorPlace.com
Dude, who's getting a Dell (DELL) these days? From recent financial reports, it looks like only a precious few consumers.
Founder and CEO Michael Dell announced Tuesday a meager growth projection of just 1% to 5% on the year, and Dell shares took a tumble. Shares were off about 8% Wednesday morning.
Post continues after video.As a result, the question on everyone's mind is "What happened to the iconic laptop provider and corporate darling to put it in such dire straits -- and can Dell stop its free fall before it becomes a tech dinosaur?"
First, let's talk big picture: Consumer spending is down dramatically from the go-go days of tech. Corporate spending also remains stagnant as companies hobble along with older computers and Windows XP instead of upgrading. And let's not forget that the entire landscape of consumer technology has changed dramatically in just a few years as smartphones get smarter and the Apple (AAPL) iPad is upending media, hardware and software paradigms all at the same time.
Now let's talk just about Dell. As my colleague Tom Taulli writes in an article with the pithy title "Dell: Death by iPad," there is nothing fundamentally wrong with the corporation. Dell stock's P/E ratio is now a mere 9, cheap compared with other major tech companies. And interestingly, the bad news about Dell's forecast came as the company actually posted a solid quarterly report. Cash flows hit a record $2.4 billion, and Dell is sitting on a nice $16.2 billion in the bank. What's more, Dell has remained true to its longtime mission of efficiencies and a strong footprint in the corporate and government markets.
Yes, Dell is suffering from the overall slowdown in the global economy. But it's also worth noting that despite moving into software and storage companies -- the so-called cloud computing arena -- the company has shown a lack of innovation. It has relied on the old idea that folks will have to buy a laptop to go back to school or have to upgrade their office PC and give them a ring.
But the world has changed. The iPad continues to gain tremendous momentum, and you can bet Google (GOOG) tablets will be right on Apple's heels, thanks to this week's massive buyout of Motorola Mobility and patents for its mobile devices.
Maybe Wednesday's sell-off and the disappointing forecast aren't the beginning of the end and Dell can turn it around. But the tech sector isn't going to give the company a decade or two to sort things out. Dell has to turn things around in a hurry if it wants to prevent the decline from becoming part of an unfortunate long-term trend.
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Theres a massive market for gamers out there. But, they need to have the power, the cooling, and the low price. Dell has not embraced this market, and its cost them.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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