Dell to Settle SEC Litigation - Analyst Blog

Dell Inc. (DELL) disclosed that it is in talks with the Securities and Exchange Commission (SEC) to resolve certain accounting inconsistencies that were discovered by the SEC for periods going back to 2005. However, the situation really got more publicized when the company, including its CEO, Michael was dragged through the press due to some underhand dealings with chip maker Intel Corporation (INTC).

The company stated that irrespective of Mr. Dell’s involvement with Intel, he would continue to function as the Chairman and CEO of the company. In 2007, a class-action lawsuit was filed by Dell’s investors, alleging that the company had been illegally receiving $1billion a year from Intel for buying its chips exclusively from Intel, thereby creating unfair competition for Intel’s competitor, Advanced Micro Devices (AMD).

To take care of the possible settlement expenses, Dell has made a provision of $100 million, which is expected to take care of all the settlement expenses .

Keeping pace with the economic recovery, Dell has improved its performance over the last two quarters. The company reported strong first quarter numbers, with the EPS exceeding the Zacks Consensus Estimate, although revenue remained flat sequentially. The EPS was also better than the year-ago quarter. New products, a stronger services business, opportunities in the Electronic Medical Record sector and its smart phone initiative are working in favor of the company.

This apart, as per the technology research firm Gartner, Global PC spending is forecasted to increase 12.0% to $245.4 billion in 2010. We believe that the company has the ability to grab a substantial share of the increase in PC shipments and take advantage of the increase in IT spending through new, innovative products and aggressive marketing.

Besides, the recent acquisition of Perot Systems has also expanded the customer base and opened up cross-selling opportunities. Dell’s relative weakness in emerging markets, mediocre performance in mobile/consumer segments of the PC market and the high level of debt are of concern.

We would like a company of this stature to come out of this legal mess with its reputation intact. We maintain a Neutral rating on Dell.