“I’m Struggling to Understand…”

When one of Wall Street’s Finest begins a question on a conference call by saying “I’m struggling to understand…” you know there’s trouble brewing.

Wall Street analysts hate to express anything but goodwill towards the companies they follow—the better to retain access to the management of those companies. Especially those companies which generate banking fees.

Which is to say, of course, every public company in America.

Thus, when one of Dell’s biggest boosters began a question on last night’s Dell call that way, you knew it was going to be a long, ugly evening. And it was.

Among the questions asked by the disappointed analysts were the following:

“I’m struggling to understand why gross margins deteriorated so significantly, both sequentially and year-over-year…”

“Do you still feel the [direct] model has advantages [over HP]?” “Should we assume that the new, lower operating margins are really part of a process of resetting the bar?”

“Why are the new lower margins not driving higher revenue…?”

“How would you assess your own execution this quarter?”

“When should we see the consumer business basically bottom out?” “I’m a little bit puzzled by the effects of the 14th week [in the quarter]…”

“Is it fair to say that HP is making it a lot more difficult for you guys to grow on the printer side, and is it a really big disappointment for you?”

I must admit that, personally speaking, I’m struggling to understand why Wall Street’s Finest expected so much more than Dell delivered last night.

For one thing, Mark Hurd has clearly stopped the hemorrhaging at HP, which used to be the SPECTRE to Dell’s James Bond—grand plans of World Domination that always ended in failure, big explosions, and Bond getting the girl.

For another thing, Dell’s service problems appear to be so widespread that my own bad experience (see “Dell Screws Up a Good Thing”) is a pretty good reflection of the decline in Dell’s brand name.

Here’s how Dell CEO Kevin Rollins wrapped up the call last night:

“Our focus is going to be, as we mentioned at the outset, continuing to work on our customer experience…”

My advice—not that anybody at Dell is asking—is this: less time on conference calls with Wall Street’s Finest, more time on customer calls.

Jeff Matthews I Am Not Making This Up © 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.