Dell: Rising or Dying?

If you're confused by the headlines surrounding Dell these days, you have good reason.

From a quick scan of a few recent pieces on the Round Rock, Tex.-based PC maker, you will see be just as likely to see a headline like this, "Dell May be Catching HP. . . " as you are a headline like this: "Dell is Dead Money at Best."

So which is it?

Mark Veverka of Barron's says not to believe Dell's turnaround story and Seeking Alpha sums up Veverka's argument for non-subscribers: Dell's consumer business still stinks, it needs to invest and not cut costs, many think Dell's cash is mostly offshore and unavailable for operations in the U.S., and the company's stock is valued way too high.

Jon C. Ogg of 247WallSt notes that IDC recently pegged Dell as gaining share in the U.S. and holding service overseas: "(IDC) noted that Dell enjoyed its strongest quarter in almost two years. The impact of new retail presence and growing strength in the portable market propelled the company to a 21.6 percent improvement in shipments."

First of all, you may not be all that impressed that it was Dell's best quarter in two years. The prior two years were simply awful for Dell. And Dell's retail strategy is still in its nascent stages; there's plenty of time for plenty to go wrong.

But it wasn't all that long ago that Dell laptops were catching fire, directors were uncovering accounting irregularities, one senior executive after another was being pushed out the door and Dell was actually losing market share. Now its share losses have stabilized, its product quality has stabilized, its accounting investigation is over and the matter is in the hands of federal officials.

It's not fighting the rational strategy of selling through the channel any more, and has formally signed up several thousand resellers into its PartnerDirect program in North America. But this transition poses more than a few risks, including inventory management issues it has never before had to confront, which it admits in its most recent 10-K with the U.S. Securities and Exchange Commission. (Investors and analysts always loved Dell because it never had to manage channel inventory.)

Dell very much resembles a company that's not yet ready to start growing. It's still vulnerable. It has to execute perfectly in every quarter with little or no room for error. But dead money? There were many people who didn't believe it when Dell laptops were catching fire, and it may take a much better argument to convince those folks now.