Analysts: SEC Probe, Delayed Earnings Could Be 'Last Straw' For Dell

"The earnings pushout and the launch of the formal SEC investigation, on top of cancelled analysts meetings and other execution miscues, will probably represent enough of a 'last straw' to override any but the most extreme improvements in Dell's fundamental business for the near-term," Goldman Sachs analyst Laura Conigliaro said in a research note. "Of more concern will be the very real possibility now that this could precipitate management changes and add more uncertainty to a company that has already decided to provide less detail and no targets."

Conigliaro's remarks came a day after Dell announced it was moving its third-quarter earnings announcement, which initially was expected Thursday, to later in the month. The Round Rock, Texas-based computer hardware giant also said an informal probe by the U.S. Securities and Exchange Commission was now a formal investigation.

Two weeks ago, Conigliaro lifted a "sell" rating on Dell and suggested that if the company could rebound operationally and on profit margins, it could contend for the title of "turnaround" candidate. Dell's announcement may have highlighted a problem it has had with its operations, she added.

"We see this announcement as potentially part of a larger picture involving Dell internal controls," Conigliaro said in the research note. A weakness in internal controls could also be viewed in Dell's previous statement that outside investigators were probing its "accruals, reservers and other balance sheet items," as well as other moves such as "unnecessarily aggressive pricing, badly chosen go-to-market strategies and poor customer service-related decisions," she wrote.

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Ben Reitzes, an analyst at UBS Securities, said in a research note that the formalization of the SEC's investigation of Dell's accounting could loom large.

"The entering of a formal stage allows the SEC to begin issuing subpoenas," Reitzes wrote. "We believe a formal SEC investigation underscores how serious of a risk this matter could be to management continuity and investors' current perception of long-term EPS and cash flows."

Reitzes said it has been difficult to get a handle on Dell's positioning recently.

"We acknowledge that making a call on Dell over the last few months has been extremely difficult, and it still is. On one hand, we are concerned by the SEC investigations and Dell's track record over the past few years in terms of dealing with Wall Street," he wrote. Yet Dell's improved product margins may be difficult for some investors to ignore when determining whether to stay behind the stock, he added.