Dell (NASDAQ:DELL) is set to announce its Q1 earnings on May 22, and it expects first quarter revenues of $14.92 billion compared to $15.02 billion for the same period last year. For fiscal 2013, Dell expects non-GAAP earnings per share to exceed the record $2.13 it delivered in fiscal 2012, and it hopes to continue with strong execution with cash flows from operations exceeding net income. For Q1, the company expects revenue to decline approximately 7% sequentially, adjusting for seasonality.  With Dell focusing on services, we take a quick look at the factors that can boost its performance. Dell’s major competitors are IBM (NYSE:IBM) and HP (NYSE:HPQ) – the global leader in the PC market and Dell’s main rival.
1) Ultrabooks Likely To Help Declining PC Sales
PC sales are on the decline and are losing market share to tablets, but Dell is positive about Ultrabooks. It recently announced that its Ultrabook range is selling at 3x expected demand and user acceptance is better than it hoped.
Dell’s PC division constitutes 20% of its stock by our estimates. Another potential source to improve sales is the open-source Linux based Ultrabook, which is aimed at capturing the web and mobile design market share dominated by Macbook.
We however expect a slight fall in PC sales due to seasonality.
2) Focus on Services
Dell has been on an acquisition spree and is making big moves to enter services for desktop virtualization, thin clients, network security and cloud services. Over the past few months, it has acquired Clerity, Make and Wyse. It is focusing on services as the business offers a higher gross margin of about 30%, according to our estimates, compared to 20% in hardware.
The services division of Dell constitutes 20% of the current Trefis price estimate. Make and Clerity are software modernization firms that help clients move from legacy systems to the cloud. We expect revenue from cloud services to be a very significant driver in the near future, and we expect Dell to report strong earnings from this division in the upcoming quarters.
We currently have a $25.60 Trefis price estimate for Dell which is 65% higher than the current market price.Notes: