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Dell Inc. (DELL) is the global leader in direct marketing of computing products and services. The company designs, develops, manufactures, sells, and offers support to a wide range of computer systems that are customized to meet varied customer requirements. According to IDC, Dell is the number one supplier of PC systems in the United States, and the number two supplier worldwide.
The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell's server business. Added to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months.
Although Dell has announced plans to cut costs, its marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters. Given the uncertainty of the length of the current world-wide recession, we have a low confidence factor on our earnings forecasts over the next two years. Consequently, we maintain our SELL rating with a target price of $8.00 a share.
Anita Mohata contributed to this report.
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