So, Dell released its earnings last evening and things didn’t go so well at the computer giant. Bottom line net income came in on target, however revenues were $300 million short. They also guided slightly below consensus for the next quarter, saying revenue should be between $14.1 and $14.5 billlion, below the $14.6 billion expected. In any case, the stock got punished today, falling more than 7%.
On the other hand today, Apple stock hit a new all time high amid rumours that Google will be launching an iTunes integrator into their search engine somehow. So let me get this straight, Dell’s revenue missed by 2% and they guided slightly lower and thus got hit more than 7%. Apple had some rumours to float off of and gained almost 5%. You’d think people are favoring Apple a bit these days huh? Take a look:
I especially enjoy the part where he says this, “Investors kind of have the attitude that Dell’s weakness is Apple’s strength.” Now why would that be? Dell is habitually quite a bit stronger than other PC makers. So if the market’s doing well, you can bet Dell’s cashing in. If Dell’s weak, you can bet your socks that the rest should be weak as well. If people aren’t willing to spend $500 on a Dell, do you think they’re more likely to spend $1500 on an Apple? I don’t think so.
Also Dell and Apple, while both being in the relative same industry, are almost non-competitors. The people who buy Apple are, for the most part, Mac enthusiasts with a few entering because of iPod frenzy. Dell on the other hand aims squarely at the budget to mid range computers with some high end computers to round out its product line. The reason Dell missed its revenue targets is because their average selling prices dropped due to discounting. I hardly think Apple benefitted from Dell’s revenue miss because Dell sold more PCs than ever before at 9.1 million units this past quarter. Apple is selling about 1 million Macs per quarter. It’s hardly that people are switching over to the Mac Mini which was supposed to grow Apple market share exponentially. Mac Minis still cost in the range of $700USD (at least) when you add a keyboard, mouse, monitor and speakers to it. Dell sells a buttload at anemic prices, many times less than $399USD for a complete package. So in terms of price, there’s still no competition between Dell and Apple and that’s where the problem lies. Dell is selling at too low prices hoping it would entice more people to buy. Unfortunately not as many did as they hoped. However revenue was still up 15% over the same quarter the previous year. Mid teens revenues growth for a company the size of Dell is something many CEOs would sell their souls for.
Dell’s business model is unparalleled by any other computer company in the world. It is the epitome of efficiency and that’s how they can make any money at all from their nosebleed-low prices. You’d think they’d make very little, but in fact Dell’s operating margins (basically percent of revenue that remains after taking out all operating expenses) are the second highest in the computer industry, after Apple which enjoys gouging the eyeballs out of unsuspecting customers. Where other computer makers consolidated (IBM selling its devision to Lenovo, HP and Compaq merging and Gateway acquiring E-Machines) Dell has relied on its business model to spur growth. Quarter after quarter it has been tearing market share away from the other computer companies while growing revenues and net income.
It’s sometimes befuddling how people think. If Dell can fall 7% on a slight miss, I can only imagine what will happen to Apple when its iPods go down the drain. It’s inevitable as people get more educated. They’ll see soon enough that adding a click-wheel isn’t a world changing event and thus doesn’t force you to buy a new MP3 player. And it is the iPods and speculation of growth od iPod sales that are propping the stock up.