Dell Overview

March 2nd, 2005 - Copyright by Morris Rosenthal - - contact info

Losing Money

Trading Notes

  • DELL
  • HPQ (Hewlett Packard)
  • INTC (Intel)
  • AMD (Advanced Micro Devices)
  • MU (Micron)
  • NVDA (Nvidia)
  • ATYT (ATI Technologies)
  • WDC (Western Digital)
  • IOM (Iomega)

Questions? Comments?

Copyright 2005 by Morris Rosenthal

All Rights Reserved

Notes on trading Dell stock for investing in my SEP

I haven't purchased any Dell stock yet, in part because it's always bothered me that they won't use AMD processors. Dell is the leading PC manufacturer in the world, if you call assembling PC's from components "manufacturing." Dell had nearly $50 billion in sales in FY 04, with just over $3 billion in income and relatively little debt (debt/equity ratio less than 0.1). Dell's main competitor is Hewlett-Packard, which generate around 60% more revenue than Dell but earns just over 15% more. Unlike Hewlett-Packard, Dell doesn't pay a dividend. Dells P/E multiple at today's price of a little over $40/share is just over 34 times earning, a pretty rich valuation for a commodity manufacturer. The main reason for Dell to be awarded with this valuation has been growth, and there's no question they've been eating HP's lunch in PC's for years, and are now aiming at HP's lucrative printer (and consumables) business. With a market cap of just under a $100 billion, Dell may be the most successful mail-order business since the old Sears catalog.

Dell had record revenue in the last quarter at $13.5 billion, and they also reported record income and unit shipments. Overall revenue for the year was up 19% over 2003, with 30% growth in shipments to the server market and 34% growth in shipments for the notebook market. Dell is trading at approximately two thirds of its peak bubble valuation, which is a remarkable feat for a large cap high tech company. Oddly enough, Dell trading volume was higher ten years ago than it is now, trading around 14 million shares a day. Founder Michael Dell own 227 million shares, a little less than 10% of the company. Dell's next quarterly report is expected around May 12th.

Analysts love Dell, the worst rating I saw on the WSJ site was a "hold."I see all sorts of trouble ahead for Dell, some of which I haven't seen talked about. The main issue I see going forward is transition from desktop to notebook PC's. Notebook PC's are highly integrated device with relatively few upgrade options within a model family, and up-selling customers has always been a big part of Dell's success/ While Dell has crushed the competition in the desktop market, the notebook players include big names like Toshiba, Sony, Acer and IBM, and plenty of OEM Asian manufacturers. While consumers and business alike see desktop computers as products that require support and expensive service contracts, notebook prices have been falling towards the "disposable" levels that will eliminate many of Dell's competitive advantages.

Losing Money | Israeli Stocks | Hardware Stocks | Software Stocks | Exchange Traded Funds