Dell Earnings Could Answer More Questions

Analysts, on average, expect Dell to report earnings of 26 cents per share on $13.95 billion in revenue, according to Thompson Financial. Those numbers would be marked declines from the earnings of 33 cents per share on $14.22 billion in revenue the company reported for the same quarter a year earlier. Dell, which stopped giving Wall Street financial guidance about a year ago, has not preannounced whether it would meet, exceed or fall short of analyst expectations.

Earlier this month, Dell chairman and CEO Michael Dell said the company would launch a significant expansion of its channel sales, saying the segment has been among its fastest-growing in North America.

Despite expectations that the quarter would show a slowdown in Dell sales overall, one group of solution providers has seen its sales growth accelerate this year.

Alan Weinberger, ASCII Group's chairman and CEO, said sales of Dell products through his organization to the channel have topped $35 million on an annual basis and should exceed $50 million this year. Weinberger said talks are under way with Dell to expand the offerings to also include a service component.

"We have over 100 of our dealers buying from Dell through this program," said Weinberger, whose Bethesda, Md.-based group signed its initial deal with Dell about four years ago. "We're not doing this with other competitors because they are going through wholesalers. We get better pricing. The more volume we do, the better pricing we get."

Weinberger said Dell primarily ships desktops and servers to solution providers through the ASCII Group contract, but that could change. "We're talking about extending it to other products," he said. "It's going to be a very interesting play."

Dell's channel expansion plans also include a retail push. While the announcement last week that Dell would begin selling two desktop SKUs through retail giant Wal-Mart was too late to have an impact on its first-quarter earnings, some believe it may have a limited impact in the near-term as well.

"We have to remember, this deal only involves the Dimension line," said J.P. Gownder, an analyst with Forrester Research. "This is much more about, 'Let's test this out,'" Gownder said of the Wal-Mart deal. "They are matching the right product to the right channel. My guess is that Wal-Mart squeezed as much as they could out of this deal. Probably, on balance both sides were very careful."

In addition to channel sales, positive quarterly financial numbers released last week by Gartner Group are working in Dell's favor. Gartner Group, Stamford, Conn., showed the company saw a 10-percent increase in worldwide server shipments -- to 14.4 million units -- in the first calendar quarter of the year, compared to 2006. And Dell's largest partner in the storage arena, EMC, Hopkinton, Mass., has also reported continued brisk sales of storage systems through Dell during the first part of the year.

But working against Dell are other numbers from Gartner Group that show Dell's worldwide PC shipments declined by almost 8 percent year-over-year for the first calendar quarter as it continued to bleed market share to rival Hewlett-Packard, Palo Alto, Calif. Dell's largest OEM partner in printing, Lexmark, also reported a first quarter in which it said OEM sales continued to deteriorate -- a sign that Dell's fortunes in that segment are likely still under significant pressure.

In addition, at the end of its fourth quarter in January, Dell was spending almost $1 million a day to handle issues arising from accounting investigations by the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York, and the Audit Committee of its own Board of Directors.

The Audit Committee, during its probe that began last August, has found "accounting errors, evidence of misconduct, and deficiencies in the financial control environment" -- the company announced in March -- although it has stopped short of providing any specifics as to what the problems were.