The Gun Counter

Not really a "Tech Talk" topic but seeing as how it's tech company of sorts...

I'm trying to figure what's going to happen with Dell. Looks like they're trying to reinvent or at least refocus their business. Going after server farm business and such...

I'm looking at Dell stock and remembering when Unisys went to ~$2 in the early 90's (or was it late 80's). Then they refocused, shed businesses and the stock roared back... Of course, there were plenty of other companies who just evaporated in those days. Still, Dell is making money and paying an actual dividend. They just seem to need to find a growth engine.

Dell recently bought SonicWALL, the firewall/network security company my company resells.

Things have been trending downhill in support, for certain. Sonicwall already was problematic on the support side (they outsourced and downgraded years ago but you could still get to the right people for quality assistance). I'm not holding out much hope for how things will be in a year.

But I don't know if or by how much the Sonicwall acquisition will affect their overall state.

CByrneIV wrote:

blackeagle603 wrote:Not really a "Tech Talk" topic but seeing as how it's tech company of sorts...

I'm trying to figure what's going to happen with Dell. Looks like they're trying to reinvent or at least refocus their business. Going after server farm business and such...

I'm looking at Dell stock and remembering when Unisys went to ~$2 in the early 90's (or was it late 80's). Then they refocused, shed businesses and the stock roared back... Of course, there were plenty of other companies who just evaporated in those days. Still, Dell is making money and paying an actual dividend. They just seem to need to find a growth engine.

They've been doing that, with a notable lack of profit on a notably high revenue stream; for years. The problem is, they have no idea how to build high end boxes for reliable operation, and support them properly. Thus they underbid every account, and miserably fail to deliver, with huge infant mortality and 12 month failure rates (on a 36 month to 48 month purchasing cycle).

If they would spend a bit more on R&D and support, and a bit more on keeping their large enterprise customers happy, they'd be golden... But Dell corporate culture doesn't understand how to do that.

From my checking on their financial statements, they seem to be doing actually much better than other computer manufactures.

Right now HP is losing money for the first time in a while, and their pulling out of some of the average consumer market and attempting to focus on their efforts on the commercial market more like IBM. I'm not sure how that will go over personally since both Lenovo and Dell have a pretty fair stranglehold over the business market.

Lenovo (who also own IBM Thinkpad Line) Historically run onvery very low profit margins, and their kinda like Chrysler where they really only have one subsidary worth looking at which is their IBM bought line of products. The standard Lenovo line always get consistently unreliable reports and shoddy build quality personally speaking, and their non-thinkpad line customer service is quite poor.

Dell on the other hand has been posting very good and consistent profit/Revenue ratios for the hardware segment when you ignore other companies that do more than just hardware (Apple ect.) I think that you have to remember is Dell's other big thing is their line of Monitors which for professional IPS Displays are incredibly hard to beat and are class leading in a lot of cases. I've heard some shoddy reports of reliability in the past on their consumer line, but lately I've seen some of the most amazing hardware customer service first hand from them, and have two of their products which is an Alienware M11X R3 and a Dell Vostro 3750 17.3 inch laptop, and are quite happy with them as far as their product quality and price paid for them. This seems quite consistent with Laptop Mags recent report on both their customer service and quality of products.

The biggest problem I see from Dell personally at this point is the lack of physical brick and mortar retailers that hold them. I always see HPs, Toshiba's, MSI's, Asus', and Acers (ughhhs). But no Dells. Their lack of physical exposure makes me question why when their quality of product seems very competitive these days.

M11X R3 has been running for more than a year now, and it seems as tight as an early 90s Mercedes.

Their lack of physical exposure makes me question why when their quality of product seems very competitive these days.

Dell's whole business model has been JIT "build to order". That's the basis of their good revenue you're seeing.

They're not unlike Walmart in that respect. They make their money on inventory turns and the float. They may only make a couple percent on their inventory but they turn that inventory rapidly and get that couple percent again and again within a year. Also, they get to work with and profit from "free money" due to the float from being paid by the customer weeks before they have to pay their suppliers.

bubblewhip wrote: Right now HP is losing money for the first time in a while, and their pulling out of some of the average consumer market and attempting to focus on their efforts on the commercial market more like IBM. I'm not sure how that will go over personally since both Lenovo and Dell have a pretty fair stranglehold over the business market.

HP's got problems, but they're not losing money. That one negative quarter was due to a write-down on an acquisition that didn't go well. More hangover from the incompetence of previous CEO's.

Not sure what exactly you mean by 'commercial market' or 'business market'. Corporate desktops? Servers? Anyway, focusing on the enterprise market and x86 server hardware is probably a good idea for them, the margins are better and it's an area where they've already got strength and an excellent reputation to build on- one of the relatively few positives from the Compaq acquisition (reason why there's a ProLiant in the name of their server line.....)

Greg wrote: Not sure what exactly you mean by 'commercial market' or 'business market'. Corporate desktops? Servers? Anyway, focusing on the enterprise market and x86 server hardware is probably a good idea for them, the margins are better and it's an area where they've already got strength and an excellent reputation to build on- one of the relatively few positives from the Compaq acquisition (reason why there's a ProLiant in the name of their server line.....)

Business market = any large purchase of computer equipment written off as such on a companies books, not an individual customer.

I personally have no experience first or second hand with HP based server hardware. My perception has always been if you wanted a server you bought an IBM, and the rest bought Dell based server hardware.

bubblewhip wrote:

Greg wrote: Not sure what exactly you mean by 'commercial market' or 'business market'. Corporate desktops? Servers? Anyway, focusing on the enterprise market and x86 server hardware is probably a good idea for them, the margins are better and it's an area where they've already got strength and an excellent reputation to build on- one of the relatively few positives from the Compaq acquisition (reason why there's a ProLiant in the name of their server line.....)

Business market = any large purchase of computer equipment written off as such on a companies books, not an individual customer.

That's not one market. Best looked at as two different markets- what goes on people's desks, and what goes in the data center/server room. In some ways the two markets are similar, in some ways they're very different. HP competes well in both, Dell does much better on the desktop while it's trying really hard to be more of a player in the data center.

I personally have no experience first or second hand with HP based server hardware. My perception has always been if you wanted a server you bought an IBM, and the rest bought Dell based server hardware.

Not really, no. The 'server market' is huge and complicated, with multiple competing platforms and a wide variety of customers with different needs and requirements. Some platforms are in decline, some are gaining. x86 has been gaining the past few years (and even x86 can be broken down by OS, but I won't try to do that here), and HP is #1 by far in that area, Dell and IBM are a fairly distant second and third (at least by revenue). x86 servers have been a traditional HP strength for some time. Dell wants into that market really bad and they've made gains but, as Chris pointed out they still have weaknesses.

(BTW, for the overall server market across all platforms, HP is #1 with IBM a close second and Dell a distant third. Oracle (Sun) and Fujitsu at #4 and 5 also have a market share worth mentioning, and then there are the others.)

hmmmm...

crystal balls and tea leaves

Conclusion - Huge Margin Of Safety, Asymmetric Return Profile

Dell is positioning itself to be a vendor of enterprise solutions to individual businesses, and to attach high-quality software to its hardware offerings. While this is by no means an easy transition, Dell has a $3.5 billion cash cushion, which is unlikely to be burnt via acquisitions given Dell's recent close on Qwest software.

Furthermore, the valuation offers a significant margin of safety. At less than 6 times earnings, meaningful downside is only plausible if EPS takes a surprise turn downward. Given the above, conservative scenario for $5.33 billion in net income by 2017 excluding any D+M income, Dell would be trading at a market cap of $32 billion, compared to today's valuation of $17 billion.

This model calls for 20% annual returns, without accounting for share buybacks or annual dividends (which are currently 3.20%), and assumes a conservative growth rate of 7.5%, no multiple expansion, and a worthless PC business.

blackeagle603 wrote:hmmmm...

crystal balls and tea leaves

<snip>

and assumes a conservative growth rate of 7.5%

Uh, what? It's only "conservative" because it's less than Dell's own (wishful thinking?) projection. So I can pull any old number out of my ass, and if you drop it by a third you're being "conservative"?

It's possible. But I don't know if it's justified.

Had a former brother in law who worked sales/engineering in electronics test equipment. He said HP had higher standards for server, desktop and laptop QA over Dell.

My employers data center is all HP and Sun.. We're starting to see some Cisco server voice platforms but they're voice specific..

Only gripe I have against HP is to much off shoring of support handling hardware replacement calls. Usually just a hard disk or occasional DIMM.