Leading computer manufacturer Dell Inc. (DELL) recently filed lawsuits against five Japanese and Taiwanese technology companies, which have formed a cartel to fix the price of liquid crystal display panels. The five companies named in the lawsuit include Sharp Corporation, Toshiba Corporation, Hitachi Ltd., Japan’s Seiko Epson, and Taiwan ’s HannStar. 

According to information published by Bloomberg, Dell has alleged that these flat-panel display manufacturers have been working closely to inflate prices of products that Dell had been buying from them since 1996. As a result, Dell’s business interest has suffered to a considerable extent. Although this recent lawsuit may have a temporary negative impact on the supply of inputs for the computer maker, we believe Dell will arrange a backup of other suppliers that could fill in. 

After establishing itself as a personal computer maker, Dell is trying to diversify into other segments, such as storage and Electronic Medical Records. This apart, the company has also launched a smart phone, Mini 3 that is running on Google’s (GOOG) Android mobile operating system and connected through AT&T’s (T) carrier network. 

There is no reason to think that the Dell phone would not gain popularity, considering Dell’s history of innovation, although the success rate is uncertain, as the company will face intense competition from new smartphone launches by Google, Nokia (NOK), Apple (AAPL) and HTC.
We believe that even if Dell is able to capture a small share of the smart phone market, the additional growth opportunity would be substantial. The technology research firm, iSuppli expects global shipments of smartphones to increase to 235.6 million units in 2010, an increase of 27.9% from 184.2 million units in 2009. 

Dell gives us a mixed feeling, as the company reported strong fourth quarter numbers, with the EPS exceeding the Zacks consensus estimate, and revenue moving up sequentially. On the other hand, for the upcoming April 2010 quarter, the Zacks Consensus Estimate of 26 cents is higher than the most accurate estimate of 25 cents, which could pressure prices if earnings miss expectations. Besides, in the last 30 days, 13 analysts have reduced their estimate, while 3 have upgraded. 

We believe that the new product launches, a stronger services business, opportunities in the Electronic Medical Record sector, the smart phone initiative and a revival in IT spending are positive factors. But the company’s relative weakness in emerging markets and the mobile/consumer segments of the PC market, the high level of debt and the current lawsuit remain headwinds.
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