Dell is still PC powerhouse

October 01, 2006|By Andrew Leckey | Andrew Leckey,TRIBUNE MEDIA SERVICES

I am very disappointed in my shares of Dell Inc. and wonder if there is light at the end of this tunnel.

- K.T., via the Internet

There is trouble in what was once the paradise of the computer world.

The nation's No. 1 personal computer manufacturer must reassess everything it does, including its long-admired direct-to-consumer business model based on Internet and telephone orders.

Its fiscal second-quarter report to regulators has been delayed due to probes of its accounting methods by the Securities and Exchange Commission and the U.S. attorney's office of the Southern District of New York. It also is conducting an internal investigation.

Another problem: It has issued a voluntary recall of 4.1 million potentially flammable laptop batteries made by Sony Corp., the largest electronics recall in U.S. history.

That's not even mentioning fierce competition from advancing No. 2 PC-maker Hewlett-Packard Co., or concern about more than half of Dell's revenue still coming from the mature desktop computer market.

Shares of Dell (DELL) are down 28 percent this year, after a decline of 29 percent last year and a 24 percent gain in 2004. Second-quarter earnings numbers indicated a significant decline in profit and modest increase in sales.

Dell's turnaround initiative includes improvements in customer service and product innovations such as next year's release of a PC featuring a Blu-ray disc drive that reads and writes more data onto optical discs than today's DVDs.

The biggest shift of all: Dell opened its first retail store in Dallas and a New York store is planned for early 2007. It intends to roll out 100 to 200 retail stores nationwide.

Throughout recent problems, founder and Chairman Michael Dell has voiced support for chief executive Kevin Rollins, hoping to quiet the calls for Rollins to be sent packing.

The firm remains a computer powerhouse with a tremendous organization to sell a growing range of products. It launched four new desktop computers for home- and small-business users, all capable of supporting Microsoft Corp.'s new operating system Vista. Dell is constructing new plants in India and Poland.

The consensus rating on Dell shares is currently a "hold," according to Thomson Financial, consisting of three "strong buys," five "buys," 15 "holds," three "underperforms" and two "sells."

Analysts expect earnings to decline 31 percent for its fiscal year ending in January and gain 15 percent next year. The projected five-year annualized growth rate is 12 percent.

I'm looking to invest according to my principles. The Parnassus Fund has been recommended to me. How good is it?

- K.P., via the Internet

This high-minded fund invests in all sizes of stocks, has always had a soft spot for owning technology and is willing to hold large cash positions.

It has been run since its 1984 inception by San Francisco-based Jerome Dodson, who seeks out companies with products he deems beneficial to society, as well as firms philanthropic in nature. He screens out alcohol, tobacco, weapons and firms with bad environmental or workplace practices.

Because Dodson makes decisions based on where he sees the overall market headed, it is difficult to predict where his portfolio is headed at any given time. That makes it somewhat difficult to fit it into an individual's portfolio.

The $277 million Parnassus Fund (PARNX) gained 14 percent over the past 12 months to rank in the top 5 percent of large-growth funds. But its three-year annualized return of 5 percent and its five-year annualized return of 2 percent rank in the lowest one-fourth of that category.

"Jerry Dodson is an eclectic investor who has made many strategy shifts over the years and is therefore hard to pin down," said Dan Lefkovitz, an analyst with Morningstar Inc. in Chicago. "Though he definitely is experienced and the fund has reasonable expenses, we don't recommend it because we think it is difficult to make market calls and there are better socially responsible funds."

Dodson, with more than one-third of his personal liquid net worth invested in Parnassus Fund, prospered in the tech boom and weathered the bear market with a large cash position. He didn't fare as well when the market recovered.

More than a third of Parnassus Fund assets are in technology hardware and one-fourth in consumer services. Largest positions are Cisco Systems, Intel, Symantec, eBay, Bed Bath & Beyond, Gap, Sysco, Target, Electro Scientific Industries and K-Swiss.

The "no-load" (no sales charge) Parnassus Fund requires a $2,000 minimum initial investment and has an annual expense ratio of 0.99 percent.

I recently became self-employed. How do I pay my taxes now that I no longer have them withheld from a paycheck?

- R.H., via the Internet

You'll need to make estimated payments to Uncle Sam.

"If you owe more than $1,000 in taxes for the year, you have to pay estimated taxes that are due Jan. 15, April 15, June 15 and Sept. 15," said Mark Balasa, a certified public accountant in Itasca, Ill.

"Generally, the people who need to pay estimated taxes are the self-employed and retirees whose income comes from investments, because they usually aren't having taxes withheld."

If you do know exactly what you'll make this year, you can pay 90 percent of the tax you're going to owe. Because many people who must pay estimated taxes understandably don't know how much they'll make, the IRS has a "safe harbor" rule to avoid penalties.

"The safe harbor for most people is to pay 100 percent of the tax you owed last year," Balasa said. "However, people who earn more than $150,000 a year have to pay 110 percent of what they owed last year."

Andrew Leckey writes for Tribune Media Services.

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