CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

2HRS2GO: Dell the best of a bad lot

    COMMENTARY -- The reactions to the latest profit warning from Dell Computer (Nasdaq: DELL) provides the best evidence yet that the PCs have become another traditional industry.

    Dell this morning said it expects fourth quarter earnings will miss the company's original target by up to 30 percent. That normally constitutes bad news, but not today; shares of Dell opened almost 8 percent down from Friday's close, but recovered most of that loss by late morning. Dell was down only 3 percent in early afternoon trading.

    Such a relatively mild response confirms that investors already expected Dell to fall short of estimates. After warnings from all other major vendors of PCs -- not to mention Intel (Nasdaq: INTC), Dell's sole supplier of processors -- most folks viewed a Dell preannouncement as inevitable.

    There were a few hardy optimists. Robertson Stephens analyst Eric Rothdeutsch released a research note at 12:22 a.m. ET today that detailed a DELL upgrade to "long-term attractive" from a "market performer" rating. "We now believe that there may be some slight upside to our Q4:F01 revenue and EPS estimates of $8.14 billion and $0.21," Rothdeutsch wrote.

    Oops. If only he had waited eight hours.

    On the other hand, Rothdeutsch's broader thesis remains valid: "We believe the real story for 4Q:00, however, were the sharp market share gains by Dell. ... Dell should continue to increase its market share as it has done for each year for the past five years."

    Dell might be the healthiest puppy of the PC litter. The company cited market research indicating it has picked up at least two percentage points of market share, bringing it closer to Compaq Computer (NYSE: CPQ), the long-time number one vendor globally.

    Other PC vendors are trying to drive their costs down, but Dell remains the most efficient Wintel box maker, which means it's best equipped to survive the cut-throat price wars going on these days.

    But if that's the best the PC industry can offer, why invest in it at all?

    Rothdeutsch predicts 12 percent growth for the PC market this year, and other analysts see similar gains. "THE SKY HAS NOT FALLEN!" screams the title of this morning's report from Needham & Co. analyst Charlie Wolf.

    Needham's data indicates the PC market grew 9.2 percent year-over-year in the last three months of 2000. "Stronger than many industry experts had anticipated," Wolf notes.

    Great. That means the PC industry should expand at about the same rate as Old Economy stalwarts like Wal-Mart Stores (NYSE: WMT) or General Electric (NYSE: GE).

    First Call consensus for WMT predicts year-over-year sales growth of 11 to 13 percent each quarter of 2001. The lone revenue estimate for GE calls for a 13 percent increase in annual revenue.

    That's not an entirely fair comparison. After all, Wal-Mart and GE also trade at slightly higher multiples than Dell. You could argue, as many analysts do, that Dell deserves a slight premium to its current price.

    Yet even bullish Dell analysts don't see too much room for growth. PaineWebber's Don Young, for example, has a "strong buy" on Dell and a price target of $35, or more than 40 percent below the stock's 52-week high.

    Wall Street obviously believes the PC industry's recent decline has bottomed out. But the ceiling doesn't seem to be that far away. 22GO>