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Software

Dell stock gets pounded by costs

Hardware is a dying business. Can Dell make the transition to services?

Despite the fact that Dell is selling more hardware than ever, the stock has been punishedrecently due to rising expenses.

In the quarter ended Nov. 2, Dell recorded sales of $15.65 billion, exceeding Wall Street's estimate by about $300 million and representing a healthy 9% increase from a year earlier. Net income jumped 27%, to $766 million.

Can we first just recognize that $15.65 billion is an absurdly large number?

But expenses as a percentage of revenue, a key measure of how well the company is managing costs, rose noticeably. Selling, general, and administrative expenses rose to 12.2% of revenue from 10.6% a year ago. Total operating expenses rose to 13.2% of revenue, up from 11.5% a year ago.

If you do the quick math, Dell's total operating expenses were about $2 billion. So, investors want Dell to reduce the number of employees (which makes sense in theory) in order to eliminate "low-value" work, which Dell CFO Don Carty said "We have more manual work going on than we need." This is the part that throws me.

First off, Dell is moving into services, which is obviously manual and second I was under the impression (and we have all been told for years) that the key to Dell's success is the supply chain buy->build process, a process that is highly manual.

Isn't the real question if the just-in-time manufacturing model is still a competitive advantage?