Dell Earnings Preview: A New Hope

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In the book Blink: The Power of Thinking Without Thinking, Malcolm Gladwell describes our ability to make spontaneous decisions and make accurate assumptions about the world around us. If I were to mention a company like Sony, Kodak, or Research in Motion, what would your immediate thoughts be? Perhaps you’d think: “that company used to be great – the best in its industry! – but it’s lost its way and is now sinking into the abyss…” or “I lost all my money in that company’s stock…” or perhaps your brain would simply show you a picture of a dinosaur about to be smacked by a meteor. What do these companies have in common? They were once great, but failed to innovate.

Research in Motion (NASDAQ: BBRY) was a pioneer in the smartphone business. The novelty of its products has been upstaged by Google’s (NASDAQ: GOOG) Android and Apple’s (NASDAQ: AAPL) iPhone, which together now represent 95% of the smartphone market. RIM has been struggling to find itself again, unsure of whether to focus on consumers or enterprise. 

In the good old days of cassette tapes, Sony (NYSE: SNE) was the first to come up with a portable music player – the Walkman. Before the Walkman, I had to carry around my bulky gramophone when I went running (which I now understand was the cause of my ankle pain). The Walkman was revolutionary! But as technology progressed, Sony was late to every subsequent revolutionary gadget and was unable to continually wow consumers. Eventually, Apple took over as the dominant player in the portable music business, hitting Sony over the head with the iPod and iTunes store. This was an industry that Sony had the resources to develop, but failed to.

The saddest failure, to me, is Kodak’s. Engineers at Kodak invented digital photography, but the company was slow to follow through on its own technology. In this case, it wasn’t Apple that contributed to its demise (the camera on an iPhone isn’t that good), it was Kodak’s unwillingness to transition from being a film-based business to a digital one. Once again, lack of innovation amounted to a dead company.

Oh, and remember Gateway? It used to be one of the most successful PC companies in the US, but ultimately failed because of its reluctance to sell laptops in addition to desktops.

These three companies have been branded as dinosaurs; failures to remain competitive in their industries, in danger of becoming extinct (or are extinct already). Unfortunately for Dell (NASDAQ: DELL), many investors would put it in the “dinosaur” category.

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Coming up on Thursday are Dell’s results for Q3. In this report, we need to see signs of serious innovation. Where does Michael Dell see his company in five years? How about next year? How about now? Dell needs to make changes now. The company is losing market share to more forward-thinking and inventive firms – a trend that mirrors Gateway's path to oblivion. But at least Dell acknowledges those challenges and seems to be making moves to overcome them. In its last report, Dell said “…in our Consumer segment, we are seeing some impact as customers focus on alternative computing devices, including tablets and smartphones.” It’s nice to know that the company's management is aware of the problem, but it needs to trumpet some ideas if investor confidence is ever to be resuscitated. In its report, Dell needs to make perfectly clear how it plans to compete with Apple, Google, and Amazon. Convince us, Mr. Dell.

Analysts are expecting earnings per share of $0.40 for Q3. The company beat earnings forecasts last quarter, but after lowering guidance for Q3, the stock has fallen more than 20%.

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This year has been disastrous for Dell shareholders. PC sales continue to decline, competition in the tablet market is fierce, and Dell will need to retool its brand to survive. Is there any hope for the company to turn itself around? If Apple was able to reinvent itself in the 90’s, there's hope that Dell can too.

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robbyinvest has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple, Dell, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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