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 InvestorPlace Aug 17, 2011 10:26AM

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.
Unfortunately, this doesn't change the fact that Dell is losing its grip -- hence the lowered guidance from its namesake CEO and the big sell-off on Wall Street.


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.

The blessing and the curse of technology are that it changes so fast. Just as Dell was in the right place at the right time with its business model in the early 1990s and rode its success to meteoric heights, it might be ill-equipped for today's corporate and consumer tech markets.

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.

Jeff Reevesis the editor of InvestorPlace.com. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


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2Comments
Aug 17, 2011 12:48PM
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Hot Dude, you don't know what your talking about? Trying to act fad and glam? "Corporate spending also remains stagnant as companies hobble along with older computers and Windows XP instead of upgrading". Someone's bought 600 million copies of Windows 7.  The GDP is growing less than 1% this quarter so who the hell do you expect Dell to outperform. Dell is primarily a provider of business solutions based on Microsoft's enterprise solutions plus notebooks or desktops for home office use. No, they don't sell Apples. Who cares. But Dell's business cycle is very closely tied to Microsoft's and as they said during the conference call "Windows 8 is looking very encouraging".  Translation; there's going to be a real open software alternative to Apple's closed iOS and Google's Android shareware. Dude, wake up. 
Aug 17, 2011 3:40PM
avatar

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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