Why Dell Needs Drastic Action

NEW YORK (TheStreet) - Dell(DELL) is set to report earnings after the close on Tuesday, with analysts warning that it needs something drastic to convince investors of its growth credentials.

In a recent research report, Credit Suisse analyst Kulbinder Garcha suggests the company needs a "transformational acquisition," adding that the company needs to transform its profile with investors and drastically change the scope of the business. He notes that management has acknowledged this, but it could prove costly should it choose to take this route.

In 2010, for example, Dell lost out to arch-rival HP(HPQ) in a high-profile battle for storage specialist 3Par.

The Round Rock, Texas-based tech titan has tried to transition itself away from being primarily a PC-centric company, pushing towards higher-margin offerings such as services. Analysts, however, warn that Dell's transition is not going as fast as planned, adding that gross margins may become an issue this quarter.

Sterne Agee analyst Shaw Wu said Dell is seeing companies like Apple(AAPL) gain market share in personal computing. It is also impacted on the lower end by Lenovo and Acer. "We view Dell as a company in transition that needs to take more aggressive steps," Wu wrote in his note. He downgraded shares to underperform with a $15 price target.

Sanford Bernstein analyst Toni Sacconaghi notes that the PC industry is challenged, adding that Dell is likely to report "tepid" revenue growth on Tuesday. "Many investors believe that we are entering a post-PC era, with PC growth likely to be anemic or negative going forward. Against this backdrop, many investors believe that Dell is unlikely grow revenues above or even at consensus's forecast of 1-2% for each of the next two years," Sacconaghi wrote in a research report. He rates shares outperform with a $21.50 price target.