Tech Industry

2HRS2GO: Dell gets a comeuppance

Market crash anniversaries? Hah! Mighty Dell to miss estimates because of rising DRAM prices? We spit in the face of such an omen.

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Given that this is the same stock market that trembles on the silliest things, today's resiliency comes as a welcome surprise. You can give some credit to the Consumer Price Index, which rose in line with the expectations of economists.

Maybe people simply realize that Dell (Nasdaq: DELL) is a world unto itself. Its lean inventory model makes it more vulnerable to DRAM price shifts than other PC manufacturers. Companies like Compaq (NYSE: CPQ) can insulate themselves more readily because they have parts on hand and don't rely as heavily on just-in-time purchases of components.

Perhaps Wall Street just has a long term view of the memory chip market. After all, the surge in DRAM prices is likely to be temporary at best. Analysts already see things changing: Salomon Smith Barney's Jonathan Joseph today downgraded DRAM giant Micron Technology (NYSE: MU) and halved his price target for the stock, precisely because spot prices (for chips bought on an as-you-go basis) are starting to fall back to the level of overall market prices (which include chips bought on fixed contracts).

Whatever the case, I'm petty enough to get a bit of satisfaction out of seeing Michael Dell's stock slide while the rest of the market recovers some of the ground lost in recent weeks. Dell portrays himself as an embodiment of the Higher Ideal for the corporate world. He's arrogant, smug and self-satisfied.

Granted, he has plenty of reason to be. His company has been a raging success, with unbelievable growth rates built on the strength of aggressive marketing, good customer service, and quality products. I own a Dell PC myself, and I'm very happy with it.

But no need to rub it in, as Dell always does in public appearances. Arrogance abounds in the high-tech world; just look at Bill Gates. But Gates is as reviled as he is respected. Dell, on the other hand, has lived a Teflon-coated life so far.

I've never understood why some successful companies need to boast so much. Obviously you have to promote your successes, but why be obnoxious about it? Leave the self-serving commentary for pundits and let your success shine on its own.

Now we're seeing the lean inventory model has its flaws, mainly in the form of no security net. Some observers expect Dell to report earnings no more than half of what analysts expected, which is a huge fall for a company known to meet or beat estimates with unflagging reliability.

Dell will bounce back. But it's encouraging to see the company suffer a touch of humility.

Other issues:

  • IPOs
  • The difference between my boss and me are amply reflected in today's initial public offerings. For pseudo-Web plays, Dignan points to Martha Stewart, while I prefer the World Wrestling Federation. Both are profitable media empires with Internet potential just beginning to be tapped. But the WWF is more fun; on the other hand, the WWF sold non-voting shares -- always a bad sign for investors, although not out of character with the control freak reputation of company owner Vince McMahon.

  • Silicon Graphics
  • (NYSE: SGI) SGI is scheduled tomorrow to report fiscal first quarter earnings. First Call consensus sees a loss of 7 cents per share. But beyond the usual comparisons to the forecast, investors will want to know more details about future plans, which had only been sketched in general terms before Rick Belluzzo's recent departure from the CEO post.

  • Compuware
  • (Nasdaq: CPWR) Shares are up today following a strong second quarter report, but it's amazing that the stock was beaten down to begin with. Soundview Technology Group analyst Jim Mendelsson's downgrade caught the eye of many shareholders yesterday, but it came so close to the earnings announcement that the point of the whole thing escapes me. The stock already had a chunk taken out of it back in July -- unfairly so, as this column noted back then -- so it's not as if Compuware was an overvalued stock just begging for a hit.

  • Nortel
  • (Nasdaq: NT) Supposedly there's some kind of synergy between a network hardware and services company and a maker of front office software. But after hearing all the spin, does anyone know how Nortel improves Clarify's business, or vice versa? Clarify might help in the enterprise space, but the biggest contracts come from carriers like SBC, which just chose one of Nortel's rivals, Alcatel, as the equipment provider for a $6 billion network upgrade.

  • Lucent
  • (NYSE: LU) While we're on the topic of Nortel rivals and upgrades, note that Warburg Dillon Read analyst Nikos Theodosopoulos raised Lucent to "strong buy" from a "buy" rating. Theodosopoulos believes Lucent has a good chance of topping his earnings estimate of 27 cents per share for the September quarter. 22GO>