For You Believers in DELL

[Parsad]

Great response Txlaw!  Cheers!

[txlaw]

Great response Txlaw!  Cheers!

 

Thanks, Sanjeev.  :)  Only went into that detail because you asked. 

 

I really do think that DELL is one of the best risk/reward scenarios out there, despite being such a well known (but not well understood) company.  It makes perfect sense to me why it is one of the largest equity positions in HWIC's portfolio.

[ericd1]

While I realize this is a DELL discussion, the IBM comparison is music to my ears...IBM intends to push earnings to $20.00/shr in four+ years and I'm onboard...IMO IBM is one of (if not) the best undervalued LC tech...

[Munger]

Straight from the horse's mouth...worth watching if interested in Dell -- see link below.

 

As previously mentioned, i claim no special insight into the future of Dell but if the company can simply maintain existing FCF and continues to buy back stock, a boatload of money will be made in this investment...if FCF grows, huge upside...and the fortress balance sheet provides an excellent margin safety -- if FCF got cut in half from current levels, you wouldn't lose much money...the risk/reward is outstanding.

 

Dell has bought back more than $1B of stock since the end of the first quarter (April end).

 

Didn't realize that Dell is the #1 healthcare IT provider in the world -- not a bad place to sit.

 

Michael Dell also touches on the scale and depth of the distribution network, which I believe is a competitive advantage in addition to the CEO himself.  He also puts the tablet craze in perspective.  Most important, Dell asserts he is most confident about the company's ability to grow profits.  Now if the global economy falls apart (which is unquestionably a risk), the Dell business will be affected but the balance sheet and FCF provide excellent margin of safety as well as the gunpowder to capitalize on the weakness of competitors that will struggle in such an environment.

 

Also offers interesting insight on the unemployment problem.

 

http://video.cnbc.com/gallery/?video=3000030500

 

 

 

 

 

 

[A_Hamilton]

Straight from the horse's mouth...worth watching if interested in Dell -- see link below.

 

As previously mentioned, i claim no special insight into the future of Dell but if the company can simply maintain existing FCF and continues to buy back stock, a boatload of money will be made in this investment...if FCF grows, huge upside...and the fortress balance sheet provides an excellent margin safety -- if FCF got cut in half from current levels, you wouldn't lose much money...the risk/reward is outstanding.

 

Dell has bought back more than $1B of stock since the end of the first quarter (April end).

 

Didn't realize that Dell is the #1 healthcare IT provider in the world -- not a bad place to sit.

 

Michael Dell also touches on the scale and depth of the distribution network, which I believe is a competitive advantage in addition to the CEO himself.  He also puts the tablet craze in perspective.  Most important, Dell asserts he is most confident about the company's ability to grow profits.  Now if the global economy falls apart (which is unquestionably a risk), the Dell business will be affected but the balance sheet and FCF provide excellent margin of safety as well as the gunpowder to capitalize on the weakness of competitors that will struggle in such an environment.

 

Also offers interesting insight on the unemployment problem.

 

http://video.cnbc.com/gallery/?video=3000030500

 

 

 

 

 

 

Munger,

Where did you pull the $1 bn share repurchase number from? Thank you.

-A. Hamilton

[A_Hamilton]

Up nevermind. Just read the press release from yesterday. Thx. -A. Hamilton

[bargainman]

Interesting comments about the unemployment issues:

 

"you know, when i look at the unemployment in this country, it's really a skills gap more than a job gap. you know, if we set up a new site to hire 100 software or storage or networking engineers, we have to go find them one at a time and seek them out and convince them and cajole them to come work for us. if we set up a warehouse or distribution center and we have 100 jobs there, withe eel have a line of 10,000 people waiting outside to try to get those jobs. so this unemployment issue is really more of a skills gap in this country. and, you know, probably be more conversation about, you know, where are the highly skilled, highly educated workers that the -- you know, that we need and how do we make the united states a great destination for those -- for those people from wherever they may come around the world, i think -- i think there there's, you know, how to -- "

[txlaw]

DELL is now around where Michael Dell made his $150 million purchase. 

[DCG]

DELL is now around where Michael Dell made his $150 million purchase. 

 

:D He also bought over $200 Million in DELL when it was in the $20's. Following Michael Dell's purchased has been a recipie for disaster over the last several years.

[txlaw]

DELL is now around where Michael Dell made his $150 million purchase. 

 

:D He also bought over $200 Million in DELL when it was in the $20's. Following Michael Dell's purchased has been a recipie for disaster over the last several years.

 

It's worth more than $20.  I am very confident about that. 

 

The point is that DELL is cheap, not to follow anyone in.  I think I've had to tell you that multiple times. 

[tombgrt]

DELL -10% after reporting its Q2 results that were released yesterday. 

 

http://www.engadget.com/2011/08/16/dells-q2-earnings-fall-short-of-estimates-890-million-net-inc/

 

They expect revenue growth to stall but EPS target was raised.

 

Guess this is what happens if you bid up the price on expectations of an earnings beat and buy based on CSCO's quarterly report.

[Viking]

DELL is in the process of trying to reinventing itself. Will they succeed? Is anyone drinking the Kool-Aid?

 

It has net cash in excess of $4.00 per share. Earnings this year are expected to be $2.00/share; RBC is forcasting similar earnings next year. Cash flow is huge and they continue to buy back stock.

 

Expenses are increasing and revenue WE ARE TOLD will follow with a lag; services with deferred revenue. TRUST ME!

 

They are exiting lower profit businesses and this will hit their top line for two more quarters.

 

I like Michael Dell (not sure why). Do we trust management? Perhaps this is the key question to answer.

 

I got interested when it fell below $14.00. Looks like decent margin of safety at that level. Perhaps we will get another leg down as we move into September as sentiment looks to be pretty poor.

[txlaw]

Interesting interview of Michael Dell.  He's hard at work trying to take business away from HP now that they've announced they will be jettisoning their Personal Systems Group.

 

http://www.crn.com/news/client-devices/231600002/crn-q-a-michael-dells-take-on-hp-the-channel-and-dells-future.htm?pgno=1

[rranjan]

Interesting interview of Michael Dell.  He's hard at work trying to take business away from HP now that they've announced they will be jettisoning their Personal Systems Group.

 

http://www.crn.com/news/client-devices/231600002/crn-q-a-michael-dells-take-on-hp-the-channel-and-dells-future.htm?pgno=1

 

Very good interview. While I already hold a view that PC are not going to dissapear anytime soon, I found his Post-PC example numbers interesting.

[Myth465]

HP really screwed up. I am sure alot of Corporate clients will switch. I am also sure this will hurt their cross selling abilities. Not sure what the benefit was in doing things the way they did it. It seems like Management is only focused on margins...

[ericd1]

Myth - I agree - new leadership, new direction. I can understand exiting tablets, but shedding the whole pc division doesn't make sense. Competing with IBM and others is going to be an uphill battle for HP. I'm surprised the board went along with the proposal. I'm 100% HP with my office and home computer and printer equipment Maybe the spinoff will result in better equipment...maybe not.

 

[Hoodlum]

And a little jab from Apple today after Steve Jobs resigns as CEO.

 

http://www.theglobeandmail.com/globe-investor/steve-jobs-resigns-as-apple-ceo/article2140874/

 

“This is the right thing for Steve to do – to go out on top,” Mr. Gillis said. “I don't expect Tim is going to be spinning off the PC business any time soon.”

[txlaw]

For more on the future of PCs, I highly recommend taking a look at Stacy Smith's presentation from the INTC shareholders meeting in May.

 

http://intelstudios.edgesuite.net/im/2011/live.htm

 

I'm attaching the presentation.  Hopefully, Intel won't mind.

 

Start on slide 23.  Oh, and pay close attention to slide 37.

2011_Intel_Invsetor_Meeting_Smith.pdf

[Myth465]

Thanks TX, HP getting cut in half and my new Android phone have shown that I have been off the mark regarding tech. Hopefully the cheap Touchpad and this presentation will continue to further my education.

[Munger]

txlaw -- what are you doing on the pro Dell thread...this is where the smart kids hang out...kidding -- glad to see we agree on something.

 

Also glad to see rranjan is coming around after his HPQ debacle.  He can redeem himself -- no doubt in my mind:)

[txlaw]

Thanks TX, HP getting cut in half and my new Android phone have shown that I have been off the mark regarding tech. Hopefully the cheap Touchpad and this presentation will continue to further my education.

 

Well, I don't think it was such a wrong bet to be in HP from a purely financial perspective.  You would very likely have made a nice return over the long run even if you bought it at, say, $35. 

 

But I just saw no reason to own HPQ when you had DELL trading at where it was, given the differences in management and the board.  The calculus changes, however, when you have a collapse in the price like with HP over the last few month.  On the other hand, I haven't looked into Autonomy, so I won't be looking at HPQ anytime soon.

 

As for Android, I actually think that the Motorola acquisition will be very good for its prospects.  They will now have a better chance of optimizing development of Android so that it can compete with iOS from a usability perspective.  And the acquisition will help not just with Android on the phone, but with Android on the TV. 

 

The main problem with the Moto acquisition is whether they overpaid and whether it drives manufacturers to other OS's, like WinPhone.  I'm hoping that Motorola only focuses on high end hardware going forward.  It should try to compete with the iPhone in the business and wealthy consumer space.  Also, phones like the Atrix are the future.

[Munger]

txlaw -- your decision tree re HPQ vs DELL led to the right conclusion for you.  Congrats.

 

To me, it was obvious HPQ was a disaster waiting to happen and I said as much in this thread well in advance, regardless of the perceived asymmetric risk/reward based on a superficial valuation analysis.  At this point, given the stock price drop, I don't know if the current valuation reflects the struggles ahead for the company.

 

I have no clue re Google/Motorola although I would have preferred they didn't make the acquisition.

[Myth465]

I never bet on HP, but the fact that the analysis was so off leaves one to wonder. I figured they were on the same path as dell, a gradual switch to services. If I had excess cash and was more diversified I could have easily bought HP leaps within a basket. With most investments I know how or why I lost and its usually an asymmetrical bet, HP was out of no where ......

 

I figured Tech isnt as easy as other industries and Mr. Market might be on to something, I still like WDC and feel that everyone is seeing the trees and missing the forest there.

 

-----

 

I really like Android and its light years ahead of anything RIMM is doing. My major complaints would be - 1 a nerd can have a pretty nice Andriod phone with dozens of key and useful apps. This is great for me, who spent 5 hours watching videos and testing apps. It sucks for Joe Six Pack though who would prefer a nice setup out of the box (Apples strong point inmo).

 

Hopefully they begin to incorporate some of the best design apps into the stock OS, and hopefully Motorola can provide a stable platform for the corporate space.

[rranjan]

For more on the future of PCs, I highly recommend taking a look at Stacy Smith's presentation from the INTC shareholders meeting in May.

 

http://intelstudios.edgesuite.net/im/2011/live.htm

 

I'm attaching the presentation.  Hopefully, Intel won't mind.

 

Start on slide 23.  Oh, and pay close attention to slide 37.

 

Txlaw - Intel has always forecasting decent growth of PC. I think we talked about Intel views about PC sometime ago here. In big scheme of things, it's pretty simple concept due to low penetraion in developing countries and no real replacement of PC being present at this time. I picked up  some Intel few moths ago and I was hoping to add to it in recent crash but price did not go lower.

 

Michael Dell is though very quick to take a jab at competitors. Around 1997-98, I remember him saying that APPL should liquidate and return the money to shareholders or something like that. I was doing my undergraduate at that time and remember reading it.

[Munger]

Myth -- agree on comments re Android.  Also share hope for Motorola -- but tough for me to personally determine.  The economics and compet adv of the core GOOG businesses are so powerful that I wish they hadn't moved into hardware...but what's done is done -- will be interesting to see how develops...GOOG guys are no doubt smart.