Dell Is Dead Money at Best - Barron's

Includes: DELL, HPQ, IM
by: SA Eli Hoffmann

Dell (NASDAQ:DELL) shares gained 5.2% last week after it experienced a modest gain in U.S. market share (30.9% from 27.7%), while rival Hewlett-Packard (NYSE:HPQ) fell to 24.3%. Barron's Mark Veverka remains unimpressed: "Dell shares could be revalued downward by as much as 25% if they traded in line with similar companies," he says. "At best, the stock is dead money. Steer clear until Dell delivers results."

His case:

  • Dell's consumer business is still operating at a loss.
  • The U.S. market share gain is nice, but Dell's global growth -- which accounts for 94% of all PC sales growth -- is merely in line. Dell is dominated internationally by H-P.
  • Dell can't cut costs aggressively; it needs to invest heavily to overhaul its product lineup.
  • Analysts think Dell's 13 P/E ratio is too high. One money manager thinks it should be compared to Ingram Micro (NYSE:IM), which fetches only 9.3.
  • Michael Dell, a builder of renown, has yet to prove himself as a top-notch operator.
  • Some think 75% of its sizeable $7.76B cash hoard is in offshore accounts, and thus unusable for acquisitions and share repurchases without incurring heaving taxation.


Of interest: Dell announced Thursday it is expanding its China presence by selling PCs through Suning (the country's second-largest electronics chain) and doubling the number of Gome stores that carry Dell machines. "These guys are the premium two, and they are pretty expansive, not only across the big cities but down into smaller cities as well," Dell exec. Michael Tatelman says. Dell believes that young Chinese consumers buying their first computer will prefer the superstore format of larger Gome and Suning locations to the country's hectic PC malls. [AP]

Of course retail sales mean Dell is splitting its margins with a third party.