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Friday, November 21, 2008

Dell and the outperformance

The company chose to walk away from unprofitable business and held back on price cutting. This was a strategy that Rackable, admittedly a smaller player, tried when business first slowed down for them. It worked for a quarter and then the top line collapsed.

There was a one-time bonus accrual reversal that added 170 mil (3 cents) to operating income. Nonetheless, Dell showed impressive expense controls in the quarter. I still think business goes south for a while and that operating income will be under intense pressure over the next couple of quarters. Their first crack at the adversity is very impressive, though.

Dell suppliers are clearly getting the hot end of the poker here as Dell is a notoriously tough negotiator when it comes to components.

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