PC makers plunge as Dell’s weak outlook for spending sends chills down investors’ spines

PC makers plunged on Friday, with HP (HPQ) being the biggest loser in the S&P 500, after Dell Technologies (NYSE:DELL) cut its fiscal 2023 guidance due to weaker-than-expected enterprise and consumer spending, leaving analysts to stay cautious for the foreseeable future.

Bank of America Wamsi Mohan lowered his 2023 estimates for the second time this week, going to $102.7B in revenue and $6.72 per share in earnings, down from a prior estimates of $104.6B and $6.78, primarily due to the fact Dell likely has more insight into trends given its “large direct-to-consumer” model.

“Dell’s demand comments contrast recent robust demand outlooks provided by other enterprise-focused names,” Mohan, who has a buy rating on Dell (DELL), wrote in a note to clients.

Mohan added that demand is likely to keep deteriorating in the coming quarter, but it’s possible Dell (DELL) could outgrow the PC, server and storage markets by taking market share.

On Tuesday, Mohan cut his fiscal-year estimates on Dell (DELL) due to continuing PC market weakness and the impact of foreign currency exchange rates.

Dell (DELL) shares fell more than 8% to $43.69 in early trading, while competitor HP (HPQ) declined more than 6.5%.

Speaking on a conference call, Chief Financial Officer Tom Sweet said Dell (DELL) expects to report earnings, excluding one-time items of $1.53 to $1.79 a share for its fiscal third-quarter, on revenue in range of $23.8B to $25B. During its third-quarter a year ago, Dell (DELL) earned $2.37 a share on $28.4B in revenue.

Sweet said Dell (DELL) began seeing issues affecting PC sales taking effect in May. As for where the company is headed, Sweet said Dell will “remain focused on what we can control.”

Sweet also said that for its full 2023 fiscal year, Dell (DELL) expects revenue to be either flat, or up by 2% from the $101.B it reported last year.

Deutsche Bank analyst Sidney Ho, who also has a buy rating and lowered his price target to $55 from $60, noted that Dell (DELL) is going to reduce spending in light of the ongoing spending weakness, which “limits EPS downside.”

“While DELL’s valuation [trading at roughly 6.5 times 2023 earnings] is similar to or slightly below peers, we believe DELL’s estimates are now more de-risked, and we see the risk-reward as attractive at the current level,” Ho wrote.

Last week, investment firm Bernstein said Dell (DELL) would report an in-line quarter, as the PC and enterprise markets continue to soften.