Microsoft's delay of Vista in 2006 is going to kill earnings for PC makers in the 4th quarter. Sales of discounted low margin laptops and desktops will be the hottest items during this holiday season. Most customers looking for high-end PC's will certainly wait for the Vista release before buying. The perfect storm is brewing for PC makers, who typically count on Q4 to be the highest revenue quarter of the year.
Dell has already weathered a few storms this year. Profits are declining thanks to increased competition, and a battery recall that could cost as much as $400 Million. As if this wasn't enough, in August they announced an SEC probe of the company's financials. These storms have taken their toll; Dell's share price has suffered 20% this year.
In October, Hewlett-Packard (HPQ) moved into the No. 1 position for the first time since the fourth quarter of 2003 with a lead of 110,000 units over Dell. Dell has essentially moved from top dog to underdog this year.
Can Dell turn things around and regain their crown as #1 PC seller in the world?
Not in the short term.
Goldman Sachs jumped the gun on the recent upgrade of Dell. My Nostradamus-like prediction is that their November 16th Q3 earnings release is going to be a stinker. The February '07 Q4 earnings release could be the worst that Dell has ever produced.
Like a tiger hunting a wounded animal in the Indian rainforest, that will be the time to pounce. I believe that analysts are underestimating the number of customers waiting for the release of Windows Vista, and margins won't be as low as they have been in the recent past thanks to high demand. We should see some huge numbers coming from PC makers in Q1 2007. If you've pushed Dell aside recently, it's time to add them back to your watch list for a buy around early March. But keep in mind that this Master plan only works if Microsoft doesn't delay Vista for the second time - but no risk, no reward, right?
Article written by: Eric