Time traces

Dell reports its fiscal second quarter results on Thursday after market close and analysts are turning optimistic about the company’s turnaround prospect amid better consumer notebook designs, emerging market revenue and solid server sales growth.

Dell is expected to report fiscal second quarter earnings of 36 cents a share on revenue of $15.95 billion, according to Thomson Reuters. Dell doesn’t provide financial guidance, but Wall Street is expecting earnings of 41 cents a share on revenue of $16.7 billion for the third quarter.

Analysts have been turning increasingly upbeat about Dell’s prospects and IDC’s server statistics on Wednesday only reinforced that general idea that the company is on the right path.

Here’s the crib sheet ahead of the earnings report:

Server sales expected to be better than expected. Cowen & Co. Louis Miscioscia said in a research note that Dell’s server revenue should be about $1.7 billion, but could hit $1.87 billion with revenue growth of 15 percent. That incremental revenue could add as much as a penny a share to earnings. HP also reported strong server gains and Dell has been gaining on its larger rival.

SMB and emerging market gains. Small business and emerging markets are the growth engines for Dell. In fact, if Dell beats estimates it will most likely because of those two markets. Miscioscia is among the more bullish on Wall Street and projecting revenue of $16.2 billion, well ahead of the consensus outlook. Dell recently unveiled four SMB focused Vostro PCs for emerging markets with limited configurations. Dell also launched a new Latitude lineup focused on business users.

Cost cutting progress. Analysts across the board are closely Dell’s progress in cutting operating expenses and expect more layoffs from the company. However, cost cutting is likely to be offset by aggressive pricing in the quarter. Toss in marketing for new products and Dell may be cutting operating expenses only to hold the gross margin fort at best. “Our estimates reflect an 18.1% gross margin, down 187 bps year over year, due to aggressive pricing, commodity pricing returning to normalized levels and increased sales through retail channels,” said Cross Research in its earnings preview.

Retail channel shelf space. Dell in recent quarters has stormed the channel, but it’s not clear that it is gaining shelf space. UBS analyst Maynard Um notes:

Our recent retail channel checks indicate no shift in PC shelf space across major retailers, with HP dominating and Dell still having fairly limited SKUs in many major US retailers. While recognizing our retail checks are not representative of the global market, we feel these checks provide a decent idea of regional channel presence. Given recent product introductions and its strategy, we believe Dell’s presence in the US retail channel could increase in the coming quarters.

In addition, Dell is likely to talk up its consumer sales and its penchant for design. Dell has made a lot of progress toward its goal of generating product lust.
Some color on Dell’s software plans. Dell has quietly building up its software business especially for software as a service. It is also developing on Salesforce.com’s force.com platform and tweaking Vista to make it more palatable. Although the focus will obviously be on hardware any incremental color on Dell’s software plans could be notable.

Analysts generally expect Dell to tout its retail gains ahead of its peak consumer selling season and a positive tone from CEO Michael Dell, who recently bought a big chunk of stock. Dell is still a work in progress, but appears to be headed in the right direction.

Doug Merritt, SAP’s EVP and GM of Business User Global Sales, predictably came up with quote of the day on day one of the BusinessObjects influencer summit. During a ‘fireside chat’ in a near freezing air conditioned room with fellow Irregulars Mike Krigsman, Sandy Kemsley and Brian Sommer and myself, Merritt  said: “Oracle price-gouges customers even more than we do.” To put this in context, we were discussing SAP’s general go to market strategy which now seems to be even more tortoise like than the past - if that is possible.

Merritt implied the company will continue to focus on large company sales within its existing market share, using the BusinessObjects enterprise performance and GRC portfolio as the feed mechanism for the sales funnel. This is a core part of its strategy to ramp profitability rather than go for volume from products like Business ByDesign. While that doesn’t imply the death of ByDesign, it is clear the company’s distribution strategy for ByDesign is not yet aligned to SAP’s requirement to grow profitably.

I question whether this is a sustainable play, given the current attention focused on issues that are surfacing as a result of the recent price hike in SAP maintenance charges. Why would existing customers choose to continue investments when they are already concerned about affordable future cost commitments? One way this works is if the BusinessObjects portfolio can truly benefit from the halo effect of being under SAP’s stewardship.

Paradoxically, according to Marge Breya, EVP and GM of the Business Intelligence Platform group, BusinessObjects stellar performance in the last quarter was down to: “Salesforce, salesforce, salesforce.” This is a volume play yet the BusinessObjects on-demand group only has 50 people so is constrained in its potential sales footprint. Merritt said this is an issue that will get increasing attention.

In talking to the on demand team, with the exception of Business One, there was very little discussion of on demand business intelligence for SAP products. Instead, they talked enthusiastically about success they are seeing from the relationship with Salesforce.com. So which way is it?

As always with SAP, the splintered nature of the management team means that the answer depends on whom is discussing the topic. It is however worrying that so far, SAP/BusinessObjects is not really showing products that demonstrate innovation yet the company wants more money from its customers. Even so, as Jonathan Becher, SVP Marketing, Business Objects said in conversation with me: “The curious thing is that if you’re SAP, you can still win if you take the tortoise strategy.”

I have been a T-Mobile USA customer for over six years now and have four mobile phones and my T-Mobile @Home Talk Forever phone as my fifth family plan line. I read on the Washington Post that T-Mobile is apparently planning to launch a mobile phone application store similar in functionality to the Apple iPhone App store. This plan may be just what they need to actually do something ahead of other wireless carriers since they lag behind in wireless 3G data and number/variety of available high end smartphones. They do however have good coverage (I have never had a dropped call), the Sidekick, great customer service, and unique offerings with the @Home services.

One of my questions is, What phones would the application store be available for? T-Mobile USA has BlackBerry devices, Sidekick devices, Windows Mobile devices, Java-based devices, and custom environments from Motorola, Nokia, and Samsung. They were also one of the first to support the Open Handset Alliance (aka Android) and may be the first carrier to launch with an HTC Android device (I think they really need to be in order to bring subscribers to their network). The experience could vary widely depending on the mobile operating system that the applications would be available on and I think they may focus on the higher end smartphone market where people tend to buy 3rd party applications rather than just ringtones. Apple makes it look easy, but they have just the iPhone to support and it has a large display and powerful operating system to power the application store on the device itself. The T-Mobile store may or may not be available on the device in addition to a desktop access point.

There are other software stores, like Handango, that power other carrier’s mobile application stores on devices like Windows Mobile, but I don’t think there is a good cross platform store yet available and this could be where T-Mobile steps up and differentiates itself. This will not be an easy task and adding something like this will significantly increase the customer service demands as people buy applications and have issues.

There is a T-Mobile devPartner community site that looks well designed and has lots of information and tips for developers looking to support T-Mobile’s devices. The site mentions the t-zones catalog as a place to showcase applications and also states, “In the coming weeks, T-Mobile will be offering new ways to go to market.” I look forward to seeing what T-Mobile has to offer in the way of application distribution.