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Analyst upgrades Dell, cuts EMC targets

An industry observer upgrades the computer giant and lowers estimates on the storage maker in the face of a "slow summer in PC land."

A new report from Morgan Stanley says it's too soon to call the bottom for the PC market, but that didn't stop an analyst from upgrading Dell Computer.

Analyst Gillian Munson said that while "demand is slow" and "there will not be a lot of incremental and exciting news" in the PC market anytime soon, a price war should favor Dell.

"Now is the time to start buying the stock in dips," whenever the stock falls, she wrote. "While more expensive, Dell is currently the better positioned (compared to Compaq) relative to riding the upswing in Wintel in the enterprise (a theme we are increasingly fond of) and playing the low-cost game (likely the only theme that counts in this market environment)."

Munson upgraded Dell from "neutral" to "outperform" and set a target price of $33.

But despite the upgrade, Munson pointed out "the long, hot, slow summer in PC land is still an issue."

"We are bounding along the bottom in PCs and this ride may take a little while longer," she wrote.

fretting about the PC market for some time. A new report from research firm IDC found that, for the first time, unit shipments are expected to decline from the preceding year.

Sluggish sales were also behind Munson's other move: lowering earnings estimates on storage maker EMC.

"EMC has terrific products and great service, and a management team that we believe is fully aware of the issues on the horizon," Munson wrote. "However, our contacts say that might not be enough."

EMC's bottom line is heavily tied to its margins, she said, noting that "a slight downtick to 54.3 percent from 55.3 percent takes a penny out" of her earning estimates. And that margin issue could crop up if pricing pressures and the tough economy continue.

She lowered second-quarter earnings per share from 18 cents to 17 cents, and reduced estimates for the full year from 82 cents per share to 78 cents per share. According to First Call, EMC is expected to report a profit of 18 cents a share for the second quarter and 78 cents a share for the year.

• Munson also noted that consumer demand may be an issue for Apple Computer, particularly in its desktop products. She added that she expects the company to release a new iMac at MacWorld in July.

• Demand is also an issue for Compaq Computer; Munson said that the biggest factor for that company will be how well its cost-cutting efforts are executed.