Dell’s computer sales have been sucking wind for the past few years. And now comes a reminder, from Mark Veverka at Barrons, that this weakness is in spite of the fact that Dell (DELL) is effectively giving about 10% of the units away for free (a.k.a., extending vendor financing who might suddenly go belly-up).
AS IF DELL DIDN’T HAVE enough on its plate, the Texas computer maker (DELL) might get dragged down by the subprime mess. CIT Group‘s (CIT) dire cash crisis shines a light on Dell‘s financial arm, Dell Financial Services, which is a partner with CIT.
Until recently, CIT was more than just a partner — owning a 30% stake in DFS. Dell bought back CIT’s stake at the end of 2007. The upshot: DFS is largely a subprime lender to buyers and lessors of computer gear. About 9% of Dell’s 2008 sales so far have been generated with help from DFS. If DFS’s ability to finance computer sales going forward is hindered, what impact will it have on Dell sales? More important, if Dell is carrying subprime paper, what is Dell’s total exposure to the credit crisis and how will it impact a turnaround? “CIT continues to be a partner, and we are assessing the situation,” a Dell spokesman said.