Dell (DELL) has seen a marked improvement in its earnings during recent months. But that doesn’t change the long story of struggle for the world’s No. 3 maker of personal computers.
Dell is trying to wean itself away from the low-margin business of PCs. It even changed its name from Dell Computer. It seeks to become a one-stop shop for technology hardware and services, like IBM (IBM) and Hewlett-Packard (HPQ).
But that can’t hide the fact that more than two-thirds of the company’s revenue stems from PCs and accessories. Dell’s much ballyhooed jump into data storage, including its 2009 purchase of Perot Systems, accounts for only 4 percent of sales, according to Morningstar data.
Dell also is now trying to compete in the mobile device space with tablets and smartphones.
But consumers aren’t exactly screaming for its products. CFO Brian Gladden acknowledges that the mobile sector is now immaterial for Dell, and he doesn’t expect a positive contribution in the next two years.
Dell’s profit soared almost threefold in the quarter ended Jan. 28, to $927 million from $334 million a year earlier. Revenue rose 5 percent to $15.7 billion. Falling component costs and businesses replacing old computers fueled the gains. Dell reports earnings again on May 17.
Analysts express plenty of skepticism about whether profit growth can last.
“Dell reported decent fourth quarter results, with EPS and revenues increasing from the year-ago quarter,” Zacks Investment Research analysts write.
Missing the consumer buzz
However, then there’s the downside. “Despite its recent strong performance the company is focused on the enterprise segment, whereas growth prospects actually abound in the consumer segment, at least in 2011 and also possibly in 2012,” the analysts argue.
“Dell has been unable to take advantage of this growth because it does not have significant competitive offerings in the consumer segment.”
Analysts tracked by Thompson/First Call have a median price target of $17, not far above recent trading action on the stock.
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