Amazon (NASD: AMZN) and Dell (NASD: DELL), once high fliers in the tech industry, seem to have fallen on tough times recently, albeit for very different reasons. Today, both firms posted disappointing earnings, and their stock prices promptly sank as a result. So, the logical question to ask is: what happened?
Amazon lost nearly 2% of it’s share price in the day ($5.91 a share) to close at $306.10. Oddly, for most firms that would coincide with announcements of cost cutting to maintain profits, but Amazon didn’t seem to even blink. The online-retailing giant said it would hire at least 5,000 new full time workers at its distribution centers across the U.S. Amazon has been increasing its expenses to add to its distribution network in an effort to keep up with growing demand. During the company’s second quarter, it reported a 22% increase in revenue, to $15.7 billion. The firm sees having a strong distribution network as key to maintaining its dominance, so even though it may be an expensive endeavor, the firm sees it as a vital investment for their future.
Meanwhile, Dell shares slipped .54%, or 7 cents to end the day at $12.87. Activist investor Carl Icahn who is embroiled in a power struggle for the company, sent a letter to Dell shareholders, rebutting comments the PC maker’s chief executive Michael Dell made about voter turnout at the company’s August special meeting, as part of his attempt to take the PC giant private.
Amazon is still the world’s largest retail empire, and maintaining that empire in the increasingly competitive virtual market place is not a linear exercise. As more and more competitors strive to emulate their model (some, like Google (NASD: GOOG) who have even more cash then Amazon), the landscape will continue to evolve. Dell’s power struggle over who will ultimately own the company if and when it goes private continues to dominate headlines for the Austin, Texas based computer giant. The drama has played out in the press for months, and there are no signs of that coming to a quick conclusion.
Both firms are struggling to get back on the right path. For Dell, that may mean shifting its product focus to mobile devices and tablet computers, given the demand for their low cost desktop pc’s has largely evaporated in recent years. For Amazon, that means continuing to offer a value proposition for its customers. Whether either manages to achieve that is yet to be seen, but both will likely be slow, and arduous processes.
