Shiv Kapoor

Why Smart Money Should Buy Dell

The main difference on FCF between your calc and mine will come from the working capital adjustment in each historic years and use of the actual share count each year. No doubt Dell has a hard job ahead of it; I think they have an executable turn around plan which is progressing well, though the economy turn makes it difficult. In terms of Asia competition; this is a real threat - my view is that any company no matter of what incorporation can in the global world do what the Asian competitors do, where they do it. Since Dell has embraced globalization, it stands to benefit greatly. Over an emergent Asian competitor, Dell will have (a) better management (b) better intellectual property (c) better supply chain (d) better access to capital; this coupled with the ability to source and produce in EM's will allow them to stay ahead.

Mind you since I wrote this post the market has created a fair few opportunities with better FCF growth potentials in basic materials and energy. Provided of course that EM's continue to grow long term.

On Dec 05 08:36 PM mannheim wrote:

> What definition of "FCF" are you using with those numbers? If I use
> FCF = Net Inc + Depr&Amort - CapEx - Cost of Stock Options, I
> get $1.81 (1/30/08), $1.70, $2.04, $1.71, $1.47 (1/30/04), which
> puts the 5-yr avg at $1.75...am I missing something here? (all share
> counts are 1,960 million) This might be mice-nuts, but "inquiring
> minds want to know"...
>
> I'm torn on Dell, because it does have tremendous FCF growth potential.
> However, the present and future of the PC business is increasingly
> laptop-driven, which diminishes the value of Dell's marvelous supply
> chain. At the same time HP has improved their supply chain, further
> eating into Dell's moat, so much so, that I think these companies
> for all intents and purposes are at parity. (from the manufacturing
> perspective) In addition to altering their business model, they
> need to improve the quality of their consumer products, to Jake's
> point. They have a lot on their plate...
>
> Longer term, I'm also concerned about any competitive advantage they
> could re-establish. If you look out 10 yrs, there's a good probability
> of multiple emergent Asian suppliers that could become the lowest
> cost producers in an increasingly commoditizing business.
>
> Given these risks, it seems that any valuation would have to discount
> appropriately. I don't know if the probabilities can realistically
> be well-estimated. This might be a case of "too hard"...