HDD Costs, Low Demand Hamper Dell's (DELL) Q4 Results, Outlook; Analysts Comment

Dell (Nasdaq: DELL) shares are trading lower Wednesday following its fourth-quarter 2012 results and light overlook.

After the market closed Tuesday, Dell reported earnings of 51 cents per share and revenue of $16.03 billion, versus consensus views expecting EPS of 52 cents and revs of $15.96 billion.

Looking ahead, Dell sees fiscal 2013 EPS above $2.13, the same EPS it delivered in 2012. The Street was expecting $2.04.

For more on the numbers, click here.

Analysts have chimed in on the results Wednesday:

• Goldman Sachs continues to believe that Dell's gross margin reset will hamper its earnings power "particularly now that opex levels must remain above historical levels in order to fund the company’s enterprise expansion initiatives."
  
  Looking to the first-quarter 2013, Goldman sees revs of $14.88 billion and EPS of 43 cents. For 2013, EPS should be $1.80 with revs of $60.77 billion.
  
  
• Collins Stewart noted the impact of HDDs, handset write downs, and lower demand in the public sector impacting margins. The firm commented, "We believe investors still need visibility into how much pruning of business is left and what the LT rev growth and stable run-rate margin structure look like. We expect lack of visibility on these issues to push the shares back down after the recent rally."
  
  For the next quarter, Collins sees revs of $14.99 billion and EPS of 47 cents. In 2013, Collins is modeling revs of $62.02 billion and EPS of $2.08.
  
  
• Brean Murray Carret voices some concern at Dell not providing 2013 revenue guidance. Commenting on the move, Brean gave the following three reasons: "1) macro has changed, 2) they’ve decided to walk away from more "undesirable returns" business than originally anticipated, and 3) Dell has noticed that they’ve been generally penalized the last couple years for missing their annual revenue growth targets while undergoing their business model transformation."
  
  Brean is also making a material adjustment to its 2013 gross margin expectations, boosting its outlook from 21.70 percent prior to 23.08 percent. Commenting on the change, Brean stated, "as in the Jan Q, Dell GM was impacted by hard drives (~$75M) and unexpected costs to consumer phones (~$25M) that it expects to begin abating in the Apr Q and to continue softening through the year. In fact, Dell anticipates its GM to ultimately increase through the year from Jan Q levels of 21.7% (which were in line with our estimate) as Jan Q forces abate. While the increase in drive ASPs was a headwind, the biggest unforeseen impact was a greater than anticipated inability to get the desired mix of drives, which prevented Dell from shipping some more profitable configurations."
  
  For next quarter, Brean sees revs of $14.87 billion and EPS of 51 cents.
  
  
• Deutsche noted the positives as Enterprise & SMB results while negatives were weak gross margins and Public sector results. On Enterprise, Deutsche commented, "As Dell continues driving its mix towards enterprise, we expect FY13 consensus estimates to trend towards our model despite an expected sluggish PC demand environment."
  
  For gross margins & Public, the firm stated, "We were surprised by the magnitude of the HDD impact given that HDDs are only ~10% of the PC bill-of-materials within a benign commodity environment. However, we estimate client GM% was down ~2ppts Q/Q. Looking forward, we expect multiple catalysts to support margins including: Romley server upgrade cycle, storage compares getting easier, easing HDD constraints and strong services contribution (backlog +11% Y/Y and revs +12% Y/Y)."
  
  Looking ahead, Deutsche sees first-quarter revs of $14.96 billion and EPS of 48 cents. For 2013, revs should be $62.38 billion with EPS of $2.20.
  
  
• Wells Fargo, for the most part, is echoing above views: revs were in-line with service performing well, and software not. The firm comments, "The enterprise solutions business also performed well in the quarter. The company noted that servers and networking revenue increased 6% in the quarter, with accretive margins and rising ASP’s."
  
  Wells is looking for Q1 revs of $14.85 billion and EPS of 46 cents. For 2013, revs should be $62.50 billion and EPS of $2.17.

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