Dell's hell continues: Decoding the Dell analyst release

When plain-vanilla PC maker and enterprise equipment giant Dell (DELL) released guidance on July 13 ahead of an analyst meeting on July 14, the new information sent shares sharply downward, and no wonder. Despite Dell's best efforts to put a positive spin on things, there really was no good news at all.

Sure, Dell has been struggling mightily. Net earnings fell by nearly 50 percent in the last quarter as Dell's business was ravaged by the Great Recession. Still, we can't help but poke fun at the happy talk Wall Street veneer on display in their guidance. So here's a line-by-line breakdown with our interpretation of what Dell's beleaguered CFO Brian Gladden was probably really saying inside his head.

Release: "Dell said today year-over-year demand for its information-technology products appears to have stabilized, and that it expects to report a slight sequential revenue increase in its fiscal second-quarter 2010, which ends July 31."

"Folks, no more bad news is great news. We're popping champagne. This is the best part of the release, so please smile and clap."

"The company also anticipates a modest decline in Q2 gross margins, the result of higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand."

Gladden: "Um, not quite sure what to tell you. Our costs are up, we're in a crappy industry, and our product mix is terrible. Plus businesses aren't buying IT. Next question?"

"Speaking in advance of a Tuesday meeting in Austin with securities and industry analysts, Brian Gladden, the company's chief financial officer, said that while demand for Dell's products and services seems to have stabilized, it varies significantly by customer segment and geography.

Gladden: "This is where I hedge the no bad news is good news statement. There had to be a catch, right?"

Release: "He added that Dell remains focused on optimizing liquidity, profitability and growth in the midst of a still-challenging operating environment, and is on course to reduce annual costs by more than $4 billion by the end of fiscal 2011. Reductions are coming from a combination of greater efficiencies in design and procurement, optimization of manufacturing and supply chain logistics, and ongoing reductions in operating expenses."

Gladden:"We're really great at cutting costs. We're not so great at growing anymore. So we're gonna cut costs. Lots of costs."

Release: "The company stated that, over a longer time horizon, it will be targeting 5 to 7 percent compounded annual sales growth, operating income at or above 7 percent of revenue, and cash flow from operations exceeding net income. However, such results are dependent on broad global economic improvement accompanied by higher worldwide IT spending, including a sustained double-digit growth rate in demand for computer systems."

Gladden: "Hey, I'd love to get even mid-level single digit growth. But things are so bad out there right now that I really can't promise anything. And even my numbers here are premised on some pretty rosy assumptions about double-digit growth in a quickly maturing sector under attack from both Netbooks and smartphones. And definitely ignore those Gartner numbers from last week calling for an accelerated decline in global IT spending."

Release: "We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point," Mr. Gladden said.

Gladden:"Are you kidding me? No one is buying anything, people! Give me a break!"

Release: "In the meantime, we continue focusing our energy and resources on the operating initiatives that will improve the company, and position us for future success."

Gladden:"Future success is not codeword for present failure. It's really, really not."

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