Dell Dangerously Delays 3Q Report

By Scott M. Fulton, III, BetaNews

November 16, 2006, 12:36 PM

Perhaps hoping the spirit of thanksgiving in the financial arena will help the company slip past the wary eyes of both the US Securities and Exchange Commission and the NASDAQ stock exchange, Dell announced today – on the day its fiscal third quarter 2007 report was due – that it will be delayed yet again to sometime toward the end of this month.

Already, Dell’s second quarter 10-Q filing was delayed, although it did go forth with its quarterly earnings call to analysts last August. The problem is with two realities of accounting, which may be continuing to drift further apart: Dell may be among those companies that, at least some years back, failed to report the value of options granted to senior executives as expenses. The company has yet to state how far back the practice may have extended, nor who may have benefited from the alleged practice, though other targets of the SEC’s ongoing investigation – including Apple and nVidia – have been more forthcoming.

The reason for Dell’s relative silence could very well be that it doesn’t know. “The move from the originally scheduled date of November 16 reflects the level of complexity the company is facing in the preparation of its preliminary results,” the company stated this morning. “This complexity arises out of the ongoing investigations by the Securities and Exchange Commission (SEC) and the company’s Audit Committee into certain accounting and financial reporting matters, and the fact the company has not filed its Form 10-Q for the second fiscal quarter.”

Shares of Dell rose in early morning trading, in anticipation of what analysts were saying could be not-so-bad numbers. While net margins have declined from 6.5% at the middle of last year to an estimated 5.0% in August (without a 10-Q on hand, it’s hard to know for sure), analysts were expecting Dell executives to say today that sales volume increased.

But the company’s announcement today that its earnings report, when it does come, will be in the form of a press release only, sounded very ominous. Who knows how much information will come from just a press release, without analysts’ questions? And there’s more that can be implied from that sentence: A third quarter 10-Q is probably unlikely this year.

The fact that Dell is facing complexities arising from this investigation that others have not, could be an indication that the SEC is expanding its probe into Dell further, according to a Lehman Brothers analyst this morning. The SEC itself isn’t helping, by refusing to say how long the extended probe could extend.

Already, Dell has received one notice threatening delisting from the NASDAQ stock exchange, though its appeal of that notice enabled the company to effectively delay its reporting...until today. A further delay could be historic, in a bad way, for Dell and its shareholders. While analysts continue to emphasize their “buy” ratings for the stock, it presumes shares can actually be bought.

Dell stock value tumbled as much as 4% in early trading on the NASDAQ exchange Thursday. HP, meanwhile, is expected to post its fiscal fourth quarter earnings report later this afternoon, where that company is expected to gloss right over its recent managerial troubles to focus on much-improved shipments and revenue numbers.