Dell's margins in spotlight, Wall Street waits and sees
Investors will scrutinize Dell Inc's quarterly earnings for signs that healthy business spending and lower component costs are shoring up margins, a top priority for the world's No. 2 personal computer maker.
Wall Street has criticized Dell for its choppy execution on that front, and the company is keen to demonstrate that efforts to improve profitability by moving into new and higher-margin markets are bearing fruit.
Dell's shares often trade below its gross margin, but the company has missed Wall Street's target in six of the past eight quarters. Analysts, on average, are predicting a margin of 18.6 percent for the fourth quarter.
Investors have adopted a wait-and-see attitude. The company's stock is flat from a year ago, versus a roughly 30 percent gain in the Nasdaq composite index.
Last quarter, Dell surprised Wall Street as earnings and margins blew past expectations, and the company raised its yearly forecast.
For its fiscal fourth quarter, Dell is expected to earn 37 cents a share on revenue of $15.7 billion, according to Thomson Reuters I/B/E/S.
Dell is scheduled to report fiscal fourth-quarter earnings after the market closes on Tuesday.
The bulk of Dell's revenue comes from low-margin PCs, but the company has been working for years to diversify its revenue base and move deeper into more-profitable data center equipment and the mobile market.
With $14 billion in cash, the company plans to be an aggressive acquirer as it battles foes such as International Business Machines Corp and Hewlett-Packard Co.
The company has also made plenty of noise in the mobile market of late, launching tablets and smartphones, but the reception has been lukewarm.
Dell trades at near 10 times forward earnings, a bit better than rival HP, but a lower valuation than IBM.
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