Why Mike Dell Hates Me

By , Money Morning •

I am about to buy my daughter a computer for her birthday. But that's not necessarily great news for anyone involved - her, her mother, the folks who are making the machine, or even the guys who are delivering it to us.

My daughter will be pleased enough when she sees the box. What she will find inside the Styrofoam peanuts will greatly resemble my high-end laptop, which she has been coveting (and frequently borrowing) for a year now. But it won't be anywhere near as powerful, and it will only cost me about 10% of what I spent on my machine.

When she plugs it in, she will discover that her cheapskate, dictatorial father has purchased her one of those newfangled "netbooks." It will have just enough computing power and memory to allow her to search Wikipedia, write reports for school, and chat with friends on Facebook.

A Fancy Abacus?

No movies. No games (except maybe solitaire). I'm even getting it in basic black. If she wants to look cute, she can decorate it with Hannah Montana stickers, or whatever girls are into this week.

And if she tries to do anything at all with it after bedtime, she will be in for the rudest of shocks, because the one thing I am spending my hard-earned cash on is the biggest, meanest, locked-down "net nanny" I can load onto the thing. She won't even be able to turn it on after 9 p.m., and it won't go anywhere near a night-time chat room without having a nervous breakdown.

I'm not particularly worried about this little moron of a computer embarrassing her in front of her friends. I already do that all by myself (it's really not all that hard; all I have to do is appear anywhere near her when they are around, or, heaven forbid, actually speak out loud in front of them). Besides, I know for a fact that most of her friends are slated to receive similarly lobotomized "el cheapo" machines over the next few months.

In fact, these anemic little netbooks are the fastest-growing segment of the PC industry. Problem is, nobody's making much money off them. And they are displacing most all other PC sales.

Dell: Down On Netbooks

Dell Inc. (Nasdaq: DELL)is having about as much success flogging these things as anyone out there. But at a recent dinner hosted by Silicon Valley's Churchill Club, Dell Chief Executive Officer Michael Dell disparaged his own offering:

"We see a fair amount of customers not really being that satisfied with the smaller screen and the lower performance, unless it's like a secondary machine or it's a very first machine and the expectations are low," Dell said. "But as a replacement machine for an experienced user, it's not what we'd recommend. It's not a good experience, and we don't see users very happy with those."

This is really quite incredible. This is a man in the middle of trying to rescue the company he created from years of mismanagement and the worst economic environment since the Great Depression. And he is positively savaging the one thing he is actually selling these days!

Losing a Nickel to Make a Dime

If you want to understand why Dell is so down in the mouth, you have to take a look at the latest quarterly profit figures from the guys who are providing the chips for Dell's Mini. IntelCorp. (Nasdaq: INTC) just announced that both sales and profits fell by some 8% in the third quarter of 2009.

We already know that sales are down for all segments - except netbooks. Even though sales of Intel's low-power Atom processor are rolling along, the chip-making giant doesn't really make much profit off that particular line, as it costs just about as much to make these chips as any of its high-end products. But cheapskates like yours truly will only pay 10 cents on the dollar for them.

Most years, an announcement like this would be the death knell for shareholder value. However, Intel's shares actually rose some 4% the morning after the earnings release - because these anemic numbers actually beat expectations, and management promised to make more money somehow, sometime in the near future.

That's why I have actually advised my readers to pick up some calls on Dell. And Dell's chart looks like it has the same sort of growth in it. It doesn't have to make horse sense, people. In fact, these days, it seldom does. It just has to work.

Now I'm the Bad Guy Here

So I am buying a new PC, and by the time the dust settles, everyone will hate me for it.

My wife is all nervous about my daughter hooking up with middle-aged Internet lotharios. My daughter will be peeved when she realizes all the things she can't do with her new toy. Mike Dell and the fellows over at Intel are ticked off because I am not buying anything they can make a lot of money off of.

Heck, even United Parcel Service (NYSE: UPS) is going to get the shaft on this deal, because I found a coupon online that will get me free shipping (and you can just bet that Dell is squeezing a piece of that out of the shipper.)

The only person who is making out on this deal is me, really, because I will finally get my damned laptop back.

Hopefully, there won't be hot chocolate all over the keyboard again.

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Veteran financial editor Adam Lass is a Senior Editor with Taipan Publishing Group's WaveStrength Options Weekly and regular contributor to Taipan Daily. He has written numerous articles and special investment reports for several major financial publications including Taipan, The Fleet Street Letter (U.S.), Strategic Investment, and Penny Stock Fortunes. Lass appears on national television and radio, and has been quoted on The Wall Street Journal Web site. His last turn on CNBC's Squawk Box on July 18, 2007 was marked by controversy when he (accurately, as it turns out) predicted that the Dow Jones Industrial Average would fall from 13,965 to less than 8,000. He was never invited back.]

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