Dell’s weak computer forecast draws price target cuts

ROUND ROCK, Texas, Wed May 23, 2012 – Dell Inc.’s weak forecast and disappointing quarterly results triggered price target cuts from a slew of brokerages on the stock of the world’s No.3 personal computer maker.

Shares of the company were down about 13 percent at $13.13 in premarket trading.

Dell said it expects its revenue to grow 2 to 4 percent to between $14.7 billion and $15 billion for the current quarter, well short of the $15.4 billion analysts had been expecting on average.

A cautious IT spending environment and challenges in its PC business will keep dogging Dell in fiscal 2013, BMO Capital Markets analyst Jung Pak wrote in a research report and cut the price target on the stock to $16 from $18.

Dell’s first-quarter earnings and revenue were also lower than expected, hurt by weak sales to consumers, large enterprises and government units. Mobile devices like the iPad have hit demand for PCs.

Dell plans to keep up acquisitions, sustain margin growth

AUSTIN, Texas ― Dell Inc. plans to keep making acquisitions and expects to hold on to recent gains in profit margins, as it expands into areas such as storage and computer services.

CEO Michael Dell said Wednesday the computer maker will focus on “midmarket opportunities,” including small and medium businesses in the public sector and the healthcare industry as the company looks for long-term revenue growth of about 7 percent.

Addressing a key investor concern, executives at an annual analyst conference said they expect to sustain recent improvements in gross margins, and continue to see strength in corporate information technology upgrades.

Shares in the company, once the world’s top maker of computers, closed up 2.6 percent at $16.42.

The company, which is diversifying its revenue base in the face of weakened consumer demand, has enjoyed renewed favor from investors after quarterly results rose and it raised its 2012 outlook in May on strong corporate sales and improved profitability.

“We heard a much better tone and story than in recent years. Dell still has a way to go on their transformation, but we were impressed that they have accomplished what they set out to do over the last year,” said Wells Fargo analyst Jason Maynard.

“It is not entirely clear if the recent improvements in margins are temporary given better demand/spending versus their structural changes. For now, we believe this remains the primary debate on the stock,” he said in a client note.

Dell, which did not update its forecasts for fiscal 2012 at the conference in Austin, Texas, has been trying to move into fast-growing tablet and smartphone markets and such businesses as data center equipment.

Storage and service remain a key area of growth for the company. Dell expects revenue from storage to grow 15 percent to 20 percent a year on average in the next four years, and revenue from services to expand an average 7 percent to 9 percent a year over the same period.

Dell, which has steadily conceded market share to Hewlett-Packard Co. and Acer Inc. in past years, has shown progress on improving margins by moving into higher-margin businesses.

Its first-quarter gross margin was 23.4 percent, the highest since the same quarter in 1992. The company also has been focused on wringing savings out of its supply chain, helping boost margins.