The results for the No. 3 PC maker came despite signs of improvement in the sector and ahead of a widely expected pick-up in corporate spending on hardware next year. [ID:nN19191886]
Does Dell represent a buying opportunity or is it too risky? Can the company bounce back in 2010, or do market share losses and margin worries signal more trouble down the road?
HP A SAFER CHOICE
"We have been recommending for some time to investors that they should be investing in HP as opposed to Dell," said Philip Alling, an analyst with London-based Atlantic Equities. He has a neutral rating on Dell and does not own shares in either Dell or HP.
Dell recently fell to third place in the global PC market, behind Hewlett-Packard Co (HPQ.N) and Acer Inc (2353.TW), which are both taking share as they grapple in a price war.
"We have had ongoing concerns about Dell as far as market share losses in its core PC space," Alling said, also noting unease about Dell's weaker margin performance, and a lack of diversity in its product portfolio.
The corporate PC upgrade cycle has "long been the investment case on the stock ... but they have much less exposure to the consumer sector and you've seen better strength there thus far this year," said Alling.
Pacific Crest Securities analyst Andy Hargreaves said Dell faced margin pressure on both component costs and falling PC prices, along with the cost of integrating the newly acquired Perot Systems. He rates Dell market perform.
"The problem with Dell is that there's a lot of risk and the risks aren't insignificant. The PC refresh story is fairly straightforward and in a static world it would be perfect ... but it's not a static world," Hargreaves said.
"They face a lot of competition, and right now they seem to be ratcheting up the price competition."
PATIENCE WILL BE REWARDED
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