Dell: Don't Expect Any Miracles

Tickers in this article: DELL INTC TXN

NEW YORK (TheStreet) -Dell reports its second-quarter results after market close on Tuesday amid growing concerns about its ability to withstand a cautious spending climate.

Chip giant Intel , for example, recently lowered its full-year guidance to reflect a challenging macroeconomic environment and a host of other companies, including Texas Instrument , have highlighted cautious spending.

Dell, of course, has already felt the strain of an uncertain economy. The no. 2 PC maker missed Wall Street's top and bottom line estimates in its first-quarter results earlier this year, pointing to weakness in EMEA Europe, Middle East and Africa, parts of Asia and public sector. The Round Rock, Tex.-based company also offered weak guidance at the time, sending its shares plummeting.

Set against this backdrop, any investors hoping for signs of a second-quarter turnaround will be sorely disappointed.

Analysts surveyed by Thomson Reuters are looking for Dell to report revenue of $14.64 billion and earnings of 45 cents a share, down from $15.7 billion and 54 cents a share in the prior year's quarter.

PCs, in particular, look set to be an issue. "Given the sluggish trends across the PC market and softer than expected IT spending patterns, we are lowering our 2QFY13 and forward projections on Dell," explained Topeka Capital Markets analyst Brian White, in a recent note.

White cut his second-quarter revenue estimate from $14.72 billion to $14.3 billion and his earnings forecast from 48 cents a share to 43 cents a share. The analyst also cut his fiscal 2013 earnings estimate from $1.98 per share to $1.80 per share and his fiscal 2014 projection from $2.26 to $2.06.

Analysts surveyed by Thomson Reuters currently expect Dell to earn $1.90 per share and $1.99 per share in fiscal years 2013 and 2014, respectively.

Topeka's White also expects Dell's PC sales to fall 4% quarter-over-quarter, below his prior estimate of flat sales.

The analyst is not alone in voicing his concerns about Dell. UBS recently warned that the company's near-term prospects are "troubling" thanks to PC pressure. "The core PC segment is under attack, and Dell is likely to reduce guidance," explained UBS analyst Steven Milunovich, in a recent note, adding that Dell's future is a tug of war between deteriorating PC results and its enterprise strategy.

The analyst, who believes that Dell will not see a strong financial recovery until fiscal 2015 and 2016, has a neutral rating and $12.50 price target on Dell's stock.

With Dell shares slumping more than 13% this year, the tech giant clearly has plenty of work to do.

"We are concerned that Dell is a company showing declines in revenue and earnings per share indicating market share losses and lower profitability," explained Sterne Agee analyst Shaw Wu, in a note released on Monday. "Moreover, we continue to believe the company is in a tough fundamental position sandwiched between low-cost players (Lenovo and Acer) and Apple encroaching more in its core PC business as Macs and mobile devices gain share."

Wu, who has a neutral rating on Dell, believes that the company still needs to take more aggressive steps to reinvent itself. "Despite efforts to grow beyond a PC company with multiple acquisitions over the past few years, we estimate 65%-70% of its business is still tied to PCs including peripherals, software, and services," he added.

Investors will also be listening out for information on Dell's attempts to boost its sales execution during the firm's second-quarter conference call.

Disappointing sales execution was one of the factors impacting the company's first-quarter numbers, although Dell says that efforts are already underway to resolve the problem.

Despite the economic and competitive pressures weighing on Dell, Topeka Capital Markets' White believes that there could be some longer-term upside for investors. "Recent acquisitions are a long-term positive," he said, pointing to the recent purchases of SonicWall, Make Technologies and Wyse Technology, which aim to boost its enterprise business.

White has a buy rating and $15 price target on Dell.

Dell shares rose 1.19% to $12.71 on Tuesday.

--Written by James Rogers in New York.

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Tickers in this article: DELL INTC TXN