DELL: No More Excuses
Why is DELL (DELL) up in after-hours trading when their first quarter earnings results were exactly in line with consensus estimates? When they not only did not guide to an above consensus second quarter but actually discontinued the practice of giving guidance altogether? The answer is simple: they addressed real problems. Recently there had been four possible excuses for their slowing growth:
Excuse #1: DELL was at a temporary disadvantage in servers because other companies use AMD processors, which are a few months ahead of Intel’s next generation. Not any more. Temporary or not, DELL has decided to end Intel exclusivity and will now offer both Intel and AMD processors in its servers.
Excuse #2: Customer service was suffering. Well, it still is. But at least the company is doing something about it by spending $100 million to beef up its support staff.
Excuse #3: Pricing was too aggressive. In the call, DELL owned up to getting more aggressive, but downplayed the strategy by saying price “is just one lever.”
Excuse #4: The direct model may no longer be the most efficient. Well, they did not address this potential concern. Here is the relevant part of the conference call:
Keith Bachman - Banc of America
Michael, I assume, given the challenges that you have faced in the last few quarters, that you have considered numerous activities that would be changes in what your using strategy is, and might have those included using more of a two-tier model in emerging geos to increase your touch?
Michael Dell
A two-tier model — by two-tier, do you mean an indirect model?
Keith Bachman - Banc of America
Right.
Michael Dell
No, we are the direct company.
So all in all, it seems there is only one potential excuse left for DELL should they continue to post sub-par growth. And that is one that is completely against the grain of what the company does. For their sake, we hope they don’t need to use it.
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