By Andrew Park When you're as dependable as Dell (DELL), which has delivered financial results on target for 13 straight quarters, there's likely less suspense surrounding your earnings reports than a speech at a national political convention. But the PC king's fiscal second-quarter report after the market closes Aug. 12 could be different. Wall Street is awash in worries this summer, and an in-line report by Dell isn't likely to quell them.
Instead, investors will be reading between the lines for clues about the broader market. Are the recoveries in the tech sector and the broader economy losing steam? Or are they just getting started? Says Standard & Poor's equity analyst Megan Graham-Hackett: "It's a jittery market. Right now, it's at a critical time where we're getting some contradictory macroeconomic indicators."
BUYING 'EM UP. To be sure, investors should have no complaints if Dell can deliver on its latest guidance. On July 16, the PC maker told investors to expect earnings per share of 31 cents for the quarter, which would be a 30% improvement over a year ago. Revenues should hit $11.7 billion, a 19.7% gain over last year's quarterly total.
For the fiscal year, which ends Jan. 31, Dell is expected to boost earnings by 25% and sales by 17.5%. "It's one of the few computer-hardware companies that has some attractive earnings growth to it," says Graham-Hackett.
That level of growth is nothing new for Dell, which has been steadily gaining market share for several years. But the PC king is getting an added lift from strengthening demand. PC shipments rose 15% in the second quarter, according to market researcher IDC, the fifth quarter in a row that unit sales grew by double-digit percentages. Recent reports from IBM (IBM) and Sun Microsystems (SUNW) indicate that server sales are growing as well.
KEY DATA TO WATCH. The question now: How long will the sunny weather last? A host of enterprise-software outfits saw sales slow down late in the second quarter, and inventories at semiconductor giants, including Intel (INTC) and Texas Instruments (TXN), have risen sharply this year. Those could either be blips in the midst of a prolonged recovery or early warnings that the good times are coming to an abrupt halt -- and there's no consensus. "We looked at all that and the underlying characteristics and said, 'look, not really much has changed,'" says IDC analyst Roger Kay, whose firm is projecting PC sales to grow 11.4% this year.
Investors will listen for some key information from Dell. Have sales of higher-margin gear such as servers and storage, which now account for about 21% of Dell's total revenues, continued to expand as corporate tech demand rebounds? Has the company maintained its furious 31% growth in Europe and Asia, a key sign that the recovery is truly global? Are costs for components such as memory chips and flat-panel displays once again falling, a key factor in Dell's ability to slash prices and stimulate demand?
Maybe most importantly, does it expect strong consumer demand during the back-to-school and holiday-shopping seasons, both vital to tech-industry growth during the second half of 2004?
MARKET-SHARE GRAB. On that score, analysts are optimistic due to increasing interest in new digital technology, including Apple's (AAPL) iPod digital music player and its clones, Tivo-like video recorders, and Microsoft's (MSFT) Windows Media Center operating system. "People will start to realize that they probably want a better PC than they had before," says META Group analyst Steve Kleynhans.
Dell has plenty of reason to be sunny, having gained PC market share during the second quarter and extending its lead on No. 2 Hewlett-Packard (HPQ). Moreover, the guidance it gave July 16 was upbeat -- two cents per share better than the forecast just two months ago. In this summer of high anxiety, however, Dell's brand of steady, predictable improvement may not be enough to keep investors calm. Park is a writer for BusinessWeek in Dallas