Dell Turnaround Plan Gets Mixed Reviews

An ambitious plan to re-ignite Dell Inc.'s fortunes has met a mixed response among analysts and investors apparently split over how well -- and how quickly -- the computer maker can reinvent itself as an all-in-one technology juggernaut.

In the company's first earnings conference call with analysts in more than a year, CEO and founder Michael Dell and Chief Financial Officer Don Carty on Thursday said to expect continued restructuring costs and layoffs. Also weighing on the bottom line will be acquisitions and what Carty described as a slower decline in component costs.

Michael Dell outlined a long-term strategy focusing on five key markets and products, including hardware for consumers, software and other products for small and midsize businesses, and lucrative business software services, where Dell manages other companies' computer systems.

"As we reshape the business here, clearly the intent is to grow cash flow considerably over time," he said. "There's a lot of upside for us in the places that are growing the fastest."

The update came as Dell reported a 27 percent increase in third-quarter earnings that it said was buoyed by growth in markets overseas, solid demand for notebooks and falling prices for memory chips and other components.

"They seemed to be trying to dampen enthusiasm for what will be the fourth quarter," said analyst Roger Kay, president of Endpoint Technologies Associates Inc. "The bottom line keeps drifting further into the future. And Wall Street? They aren't exactly known for their patience."

Kay said Dell's quandary is how to achieve a long-term turnaround while maintaining profitability each quarter. He said the turnaround is taking longer than he would have anticipated.

Dell said Thursday it earned $766 million, or 34 cents per share, in the three months ended Nov. 2. That was up from $601 million, or 27 cents per share, in revised figures from the same quarter a year ago. Revenue grew 9 percent to $15.64 billion.

The results fell just shy of analyst expectations. Analysts surveyed by Thomson Financial were expecting the Round Rock company to post profits of 35 cents per share on revenue of $15.34 billion.

Other analysts were less critical than Kay. Samir Bhavnani at The NPD Group said Dell's challenge is to deliver on its promises, however long it takes.

"Dell is a gigantic ship and it takes forever for moves to really start having an impact," he said. "They've made the right first decisions, which are the hard decisions."

Investors' view was distinctly pessimistic Thursday evening. After Dell shares rose 1.6 percent in regular trading to close at $28.14, they fell almost 10 percent after hours, to $25.36.

It's been a rough time for Dell since August 2006, when the computer giant first disclosed an internal accounting investigation and issued a massive notebook battery recall. A few months later, Dell lost its No. 1 position in the PC market to rival Hewlett-Packard Co.

Extensive changes have followed, including the return of Michael Dell as CEO, the appearance of some consumer products in retail stores, and layoffs that will amount to about 10 percent of the company's work force.

HP continues to expand, however, and now leads Dell by nearly 5 percentage points, commanding 20 percent of the U.S. market, compared with Dell's roughly 15 percent, according to the latest data from market researcher IDC.

During the quarter, Dell shipped about 9.9 million computers worldwide, compared with HP's 12.8 million, according to research company Gartner Inc. Dell held about 14.4 percent of the worldwide PC market, down from 15.9 percent a year earlier and below HP's 18.6 percent.

Michelle Warren, senior research analyst with Info-Tech Research Group, said it was good to hear Dell's growth plan. Short-term hiccups, including restructuring, don't worry her.

"They've got this plan in place and it's a plan that will take them to a successful ending," Warren said. "It might be a new Dell to those who are outside looking in, but I think it still has the same pedigree that made them into the largest PC company a couple of years ago."

Dell has 89,100 temporary and permanent employees worldwide. Carty suggested the 10 percent work force trim is a moving target because recent acquisitions have added many workers.

The company also plans to restart its share buyback program in December. The program was suspended in August. An annual shareholders meeting is scheduled for Tuesday.