Shiv Kapoor

Dell at the Plastic Surgeon

Gregory

I believe Dell's supply chain remains very important (& relevant) and ultimately, the ability to produce affordable quality backed by top notch service will win back customers - both retain and corporate. Look at Walmart; they are in direct to consumer retail and they win, win and win again, because of their expertise in supply chain; Dell is the same. No doubt they will lose some of the advantage because of going into retail; their investment in working capital might need to rise, but remember that of Dell's $60billion in revenue only $13 billion comes from the consumer segment; the rest is very much unaffected.
Dell lost their way on quality and service and they have suffered for it. I now see huge management effort to turn around and I feel the management is quietly confident but without the arrogance. On the PR side, they err on the side of caution, possibly on account of their past SEC issues.
A Company with the ability to innovate, backed by intellectual property and a good management is a great success; but not always a good investment because of the way buzz drives valuations and frankly profits. The next best companies are those with good managements and an ability to execute; this is where I see Dell. The single most important thing to keep an eye on is the management.
Their moat has been visibly weakened; but they are working hard at rebuilding it. If we wait to see the moat strengthen, the values will run away. I have high faith in Dell's management team's ability; I like their recent presentation and I am not concerned about Asian competition - Dell can benefit from the very same competitive cost and market advantage as its competitors and they are pretty good at it. As regards their phone plan - it depends what they come up with; if they try to become an innovator, I doubt they will succeed; that is not what history says they are good at. But if they come up with an affordable quality (backed with service) product and leverage their corporate customer base and supply chain expertise they may succeed. All in all, I do not see their phone plans as a driver to future valuations; we need more information on just what they intend. I do not see Netbooks as a problem; I think this could be the next big thing if cloud takes hold; in which case there are lots of incremental high margin business in servers, storage, data management and these will be huge plus for Dell.
I have a big problem with trying to execute a buyback only when a share is undervalued. This is because when shares are undervalued it is often a period of high economic risk and this is a time when companies are reluctant to buy back. In addition, if a company stops buying at a certain value, the signal sent to the market is that the share is overvalued; which is not a good idea. Finally, no one really knows when a share is undervalued; that depends on one of more future events. Some folks are good at valuing a business, some are not. Which is why I say, just buy on a schedule; if Buffet had my money, sure I would allow him to do as he thought best fit; but that is because investing is his business and why I invested in him.
BTW - you might want to read this on my instablog; I extended my ranting and raving beyond my first cut which got published on SA!

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"...

Why Smart Money Should Buy Dell

Dell has been an incredibly poor long term investment. It has managed a pathetic 20 year return of near 28.5% annualized over the last 20 years and that is a shameful performance; it has only outperformed the broader indexes by some 438% during this period.

Why Smart Money Should Buy Dell

Walt17 - the value of Dell's supply chain is of prime importance in understanding why Dell creates value and free cash flow. This will deteriorate somewhat as Dell enters the traditional sell through retail segment; however, the deterioration is built into lower expectations of future free cash flows.

This post is not really about Dell's balance sheet, it is about Dell's ability to generate free cash flows. They are succesful because of incredible supply chain management which is perhaps second only to WMT's supply chain. Using the balance sheet to determine liquid reserves is just to identify what they have today which could be invested or distributed; what remains on the balance sheet & payables is a maintainable structural advantage Dell possesses.

36 Opportunities for the Beginning of the Bull

We are almost certainly close to a bottom. Just look at where valuations are. You have to go back 2 decades to find a point where the market multiples of prior year earnings are where we are today. Add to that the corporate balance sheets (except for financials, they are strong); of course the consumer balance sheet is bad as is the governments. I see start of an expansion in early q2 09. Have a look at maxkapital.blogspot.co...; maxkapital.blogspot.co...; maxkapital.blogspot.co....

Dell's Competitive Moves Make Sense

Agree with the author. People are crazy, they buy HPQ at $45+ and shun it at $18 (at which time they bought Dell at $40+). Now they shun Dell. If you are working un-levered and can wait, go for Dell; at some point over the next 5 years you can be virtually sure you will double from here. With HPQ you will not. That is the beauty of turn around stories - over confidence breeds arrogance and failure breeds humility and success; Dell is almost there.

Financials Downgraded - Fast Money Recap (8/15/08)

"The problem Goldman ran into is oil, explains Pete Najarian.". Goldman called potential for a spike - up sharply & then back down. It did happen though not with quiet the vigor they forecast. The past few months their conviction lists have been cautious with tight stop losses. I doubt they will be badly burnt on an oil call. Besides, oil should decline a bit further (no more than $98 probably closer to $105) before the shorts cover and cause a rally back to $120/$125 range.