Q. I am very disappointed in my shares of Dell Inc. and wonder if there is light at the end of this tunnel.
K.T., via the Internet
A. There is trouble in what was once the paradise of the computer world.
The nation’s No. 1 personal computer manufacturer must reassess everything it does, including its long-admired direct-to-consumer business model based on Internet and telephone orders.
Its fiscal second-quarter report to regulators has been delayed due to probes of its accounting methods by the Securities and Exchange Commission and the U.S. attorney’s office of the Southern District of New York. It also is conducting an internal investigation.
Another problem: It has issued a voluntary recall of 4.1 million potentially flammable laptop batteries made by Sony Corp., the largest electronics recall in U.S. history.
That’s not even mentioning fierce competition from advancing No. 2 PC-maker Hewlett-Packard Co., or concern about more than half of Dell’s revenue still coming from the mature desktop computer market.
Shares of Dell (DELL) are down 24 percent this year, following a decline of 29 percent last year and a 24 percent gain in 2004. Second-quarter earnings numbers indicated a significant decline in profits and modest increase in sales.
Dell is responding with a turnaround initiative it calls Dell 2.0, which includes spending $150 million on improvements in customer service. Product innovation is another goal, such as next year’s release of a PC featuring a Blu-ray disk drive that reads and writes more data onto optical discs than today’s DVDs.
The biggest shift of all: Dell opened its first retail store in Dallas and a New York store is planned for early 2007. It intends to roll out 100 to 200 retail stores nationwide in the next 24 to 36 months.
Throughout recent problems, founder and Chairman Michael Dell has voiced support for Chief Executive Kevin Rollins, hoping to quiet the calls for Rollins to be sent packing.
The firm remains a computer powerhouse with a tremendous organization to sell a growing range of products. It launched four new desktop computers for home- and small-business users, all capable of supporting Microsoft Corp.’s new operating system Vista. Dell is constructing new plants in India and Poland.
The consensus rating on Dell shares is currently a “hold,” according to Thomson Financial, consisting of three “strong buys,” five “buys,” 15 “holds,” three “underperforms” and two “sells.”
Analysts expect earnings to decline 31 percent for its fiscal year ending in January and gain 15 percent next year. The projected five-year annualized growth rate is 12 percent.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].