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NEW YORK (CNN/Money) – Carly Fiorina lost her job at HP largely because of profit problems in its personal computer business.
Gateway has bled red ink for the past four years. And IBM, one of the industry's pioneers, is in the process of selling its PC division because it has been a drag on earnings.
All three companies can blame Dell (Research) for their misfortune. The company somehow just keeps chugging along and generating strong sales and earnings growth, despite the fact that the PC market is maturing and features notoriously low profit margins.
Dell is scheduled to report its fiscal fourth quarter results after the closing bell Thursday and analysts expect solid numbers as the company continues to gain market share from HP (Research) and Gateway (Research) and keep costs down.
According to Thomson/First Call, analysts expect the Round Rock, Texas-based company to report earnings of 36 cents a share, up 25 percent from the same period last year and sales of $13.54 billion, an 18 percent jump from a year ago.
But given the sales miss from networking equipment leader Cisco Systems (Research) earlier this week, is there reason for investors to be worried about lackluster results from Dell also? Cisco CEO John Chambers hinted that corporate customers are still cautious about tech spending plans.
This probably won't have an impact on Dell though. Mark Stahlman, an analyst with Caris & Company, said that all the evidence points to a strong quarter from Dell, which in addition to its top market position in PCs is also gaining share in the server market.
"We've already had really good reports from Microsoft and Intel and those are the two most important suppliers to Dell. Both had upside surprises from their PC and server-related business," said Stahlman.
Wall Street is banking on sustained momentum for Dell as well. For Dell's fiscal first quarter, analysts are forecasting a profit of 36 cents per share, up 30 percent from a year ago on revenue of $13.5 billion, a 17 percent year-over-year increase.
Are estimates too low?
And the turmoil that many of its competitors face can only help Dell.
In particular, Bill Fearnley, Jr., an analyst with FTN Midwest Securities, said that the controversy surrounding IBM's (Research) decision to sell its PC business to China's Lenovo Group could benefit Dell. The status of the deal is uncertain since some government agencies have expressed concerns about national security issues.
"Our research suggests that current IBM customers are considering other vendors and certainly Dell is on that short list," said Fearnley, Jr.
So the big question facing investors is not whether or not Dell will have a good quarter, but will it be good enough to satisfy Wall Street?
Shares of Dell, after all, trade at 26 times earnings estimates for this fiscal year, a fairly steep valuation. The stock gained 24 percent in 2004 and is now sitting just 3 percent below its 52-week high. So the fact that Dell is doing well isn't exactly a secret.
Fearnley, Jr. said he's not worried about the stock's valuation though since Dell's revenue growth trends remain so strong and operating profit margins should stay well above the average for the rest of the industry. "Dell is firing on all cylinders," he said.
And Stahlman thinks that if anything, sales and earnings estimates for this fiscal year could be too low.
He said that many corporations and consumers will upgrade to desktops and notebooks that run on 64-bit processors made by Intel (Research) and its rival Advanced Micro Devices (Research). Stahlman adds that demand for 64-bit machines will really take off once Microsoft (Research) releases a 64-bit compatible version of its Windows operating system later this year.
"The transition to 64-bit computing is not in everyone's forecast. PC and server growth should be much higher than people are expecting and numbers for Dell will continue to come up," Stahlman said.
With that in mind, it will be interesting to see if Dell gives an update about how close it is to reaching the goal of $60 billion in annual sales that the company famously set for itself in April 2002.
At the time, the company said it hoped to reach that target within five years, a plan that some thought was overly aggressive since Dell had just about $31 billion in sales back then.
But Dell is expected to report total sales of $49.3 billion for the fiscal year that just ended and analysts are currently predicting that Dell will generate $57.7 billion in sales this fiscal year, which ends in January 2006.
Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the companies.
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