Dell - Bear Of The Day

The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending for Dell, Inc. (DELL). This is likely to have a major impact on Dell’s server business.

Adding to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Dell posted lackluster Q409 results as demand for equipment remained weak, although cost-cutting initiatives have helped boost its bottom line.

The company’s 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 believe Dell will continue to struggle posting inconsistent results in future quarters.

We maintain our SELL rating with a lower six-month target price of $7.00.

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