For You Believers in DELL

[txlaw]

Let's see what this guy can do:

 

http://www.businessweek.com/articles/2012-08-21/dell-hires-yet-another-superstar-executive-to-save-it

[Parsad]

This is the tech industry, market shares are rarely stable. If they were, why are HP and Dell hurting? Clearly, something is changing or we wouldn't be having this conversation.

 

Couldn't it be that corporations are waiting for the impending win8 release before they upgrade their machines?  Along the same line, I wouldn't buy a iphone 4S now knowing that iphone 5 is coming out next month.

I doubt it. Unlike consumers, the enterprise goes through a long cycle of evaluation, testing, planning for a new rollout. Most major rollouts will be at least a year after the initial release. Unlike consumers who eagerly await new versions, upgrade is a pain for the enterprise.

 

I think you're both correct.  It is a pain for enterprise users, but at the same time, they don't want to have to run through the whole thing again, so they will plan their upgrades around new releases.  By the way, I'm waiting for the iPhone 5, but if the screen isn't somewhat bigger, I won't be buying it.  Cheers!

[Guest valueInv]

This is the tech industry, market shares are rarely stable. If they were, why are HP and Dell hurting? Clearly, something is changing or we wouldn't be having this conversation.

 

Couldn't it be that corporations are waiting for the impending win8 release before they upgrade their machines?  Along the same line, I wouldn't buy a iphone 4S now knowing that iphone 5 is coming out next month.

I doubt it. Unlike consumers, the enterprise goes through a long cycle of evaluation, testing, planning for a new rollout. Most major rollouts will be at least a year after the initial release. Unlike consumers who eagerly await new versions, upgrade is a pain for the enterprise.

 

I think you're both correct.  It is a pain for enterprise users, but at the same time, they don't want to have to run through the whole thing again, so they will plan their upgrades around new releases.  By the way, I'm waiting for the iPhone 5, but if the screen isn't somewhat bigger, I won't be buying it.  Cheers!

 

Yes, it has a 4 inch screen,

[west]

I don't think you understand the stickiness of Windows.  I know at the company I work for, there is no chance of changing operating system.  We have too much software that only runs on windows.  Changing operating systems is simply not an option. 

 

The second reason would be the huge risk this would be for IT departments.  The hardware upgrade would be cost prohibitive, especially due the fact that everyone would have to be upgraded at the same time.  Thirdly, the sheer amount of training require to make a major change like this is simply not worth the effort.  This change could risk data and quality issues.  Forth, what you pay for what you get is computing power on a mac isn't going to make cost conscience companies want to make a change.  Consumers suffer from herd mentality and social pressures which drives them to Apple.  Lastly, the specs on an mac wouldn't cut it for our engineering department. 

 

I could be wrong but where I work, and we're not a big company, it switching just isn't an option.  Very small companies could likely make the switch. 

 

Fairfax owns Dell, and they'll make money on Dell.

 

Like I said, it is the worst case scenario. MSFT's moat comes from switching costs. Windows 8 increases the cost of staying within the Windows platform. While the differential cost for your company might be high, there are companies out there for whom the difference may not be that high.

We are moving to a world of cloud, tablets, smartphones, etc.

 

Not everything has to be a forklift change. More than likely, a small percentage is going to switch over and then more and more users start requesting Macs

 

Hey valueInv.  I just wanted to say that I really respect what you say in most of your posts, but, if you're implying medium to large companies will or can switch to Macs in the near future, I don't think you're quite right here.  Enterprise isn't going to switch anytime soon, if ever.

 

First, there are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

Two, Macs cost too much to be deployed in scale and there's too much vendor lock in.  Battery died?  Well, send your laptop to Apple.  I hope you don't need it charged for your presentation tomorrow.

 

Three, Apple doesn't do pure enterprise.  Period.  What Windows offers, network management wise, just destroys what Apple offers.  There's no contest.

 

Four, think incentives.  Many CIOs and other IT higher ups are MCSEs or have other forms of Microsoft certification.  Think they're going to throw out their accumulate knowledge just to "go Mac" anytime soon?  My guess is no.

 

So, like kevin4u said, I don't think you understand the stickiness of Windows.  It is very, incredibly sticky!

 

By the way, just for reference, I live in Silicon Valley, and I see all the Macs people use (and I use one myself!)  And, in a previous career, I was a Linux network software engineer for a larger networking hardware company.  So I'm not exactly a MSFT fanboy :).

 

Oh, and sent from my iPhone :D.

[Guest valueInv]

I don't think you understand the stickiness of Windows.  I know at the company I work for, there is no chance of changing operating system.  We have too much software that only runs on windows.  Changing operating systems is simply not an option. 

 

The second reason would be the huge risk this would be for IT departments.  The hardware upgrade would be cost prohibitive, especially due the fact that everyone would have to be upgraded at the same time.  Thirdly, the sheer amount of training require to make a major change like this is simply not worth the effort.  This change could risk data and quality issues.  Forth, what you pay for what you get is computing power on a mac isn't going to make cost conscience companies want to make a change.  Consumers suffer from herd mentality and social pressures which drives them to Apple.  Lastly, the specs on an mac wouldn't cut it for our engineering department. 

 

I could be wrong but where I work, and we're not a big company, it switching just isn't an option.  Very small companies could likely make the switch. 

 

Fairfax owns Dell, and they'll make money on Dell.

 

Like I said, it is the worst case scenario. MSFT's moat comes from switching costs. Windows 8 increases the cost of staying within the Windows platform. While the differential cost for your company might be high, there are companies out there for whom the difference may not be that high.

We are moving to a world of cloud, tablets, smartphones, etc.

 

Not everything has to be a forklift change. More than likely, a small percentage is going to switch over and then more and more users start requesting Macs

 

Hey valueInv.  I just wanted to say that I really respect what you say in most of your posts, but, if you're implying medium to large companies will or can switch to Macs in the near future, I don't think you're quite right here.  Enterprise isn't going to switch anytime soon, if ever.

 

First, their are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

Two, Macs cost too much to be deployed in scale and there's too much vendor lock in.  Battery died?  Well, send your laptop to Apple.  I hope you don't need it charged for your presentation tomorrow.

 

Three, Apple doesn't do pure enterprise.  Period.  What Windows offers, network management wise, just destroys what Apple offers.  There's no contest.

 

Four, think incentives.  Many CIOs and other IT higher ups are MCSEs or have other forms of Microsoft certification.  Think they're going to throw out their accumulate knowledge just to "go Mac" anytime soon?  My guess is no.

 

So, like kevin4u said, I don't think you understand the stickiness of Windows.  It is very, incredibly sticky!

 

By the way, just for reference, I live in Silicon Valley, and I see all the Macs people use (and I use one myself!)  And, in a previous career, I was a Linux network software engineer for a larger networking hardware company.  So I'm not exactly a MSFT fanboy :).

 

Oh, and sent from my iPhone :D.

 

I don't expect a wholesale switch, but I do expect to see a lot more Macs in the enterprise than what we see today. Not everyone in a company can or will switch but you will see more and more. I worked for a company which was a Windows shop too. No support for Macs and the company wouldn't buy you one either. Over time, I saw more and more people bringing and using their own Macs without support from IT. When I left, IT still didn't support Macs but it was reaching critical mass. All it would have taken was the CEO to switch to Mac and it would've set off a chain reaction.

 

The big question is what is the cost of switching to Windows 8 and beyond? From what I have seen even the Office applications don't have many of the features of current apps. What happens if many companies decide to wait out Windows 8 and then are faced with the prospect of upgrading from Windows 7 or lower to Windows 9? Today, the Mac's interface is closer to Windows 7 than Windows 8 is to it. Can you imagine the cost to train users on the new interface and the calls IT will get once people boot up their machines and don't know how to move a file? Will the legacy applications need to ported to Metro? What is the cost of that? Instead of porting to Metro would it be cheaper to switch to cloud-based applications?

 

There won't be a switch but expect some attrition.

 

BTW, there's only one major networking company in the Valley that uses Linux. Unless things have changed recently?  ;)

 

[ERICOPOLY]

I've been reading this thread today.  It's interesting the thesis that the market is hammering DELL over Win8 adoption worries, when I see MSFT at nearly a 12 month high.

[Parsad]

I've been reading this thread today.  It's interesting the thesis that the market is hammering DELL over Win8 adoption worries, when I see MSFT at nearly a 12 month high.

 

I see the current pessimisim around DELL to be nearly identical to the pessimism around Microsoft a couple of years ago.  They may not be the companies they once were, and they may not be better 5-10 years out, but they trade or traded in the territory of deep value based on existing cash flows and their balance sheets.  DELL will be trading for significantly higher than it presently trades 2-3 years out.  Cheers! 

[Guest valueInv]

I've been reading this thread today.  It's interesting the thesis that the market is hammering DELL over Win8 adoption worries, when I see MSFT at nearly a 12 month high.

 

I see the current pessimisim around DELL to be nearly identical to the pessimism around Microsoft a couple of years ago.  They may not be the companies they once were, and they may not be better 5-10 years out, but they trade or traded in the territory of deep value based on existing cash flows and their balance sheets.  DELL will be trading for significantly higher than it presently trades 2-3 years out.  Cheers!

 

Why is Dell not a value trap?

[Parsad]

Why is Dell not a value trap?

 

No such thing as a "value trap." 

 

There is execution and no execution.  Cash flow or no cash flow.  Net equity or deficit.  The word "value trap" came into existence for a way for investment managers to excuse a mistake or for paying too much.

 

At some price, Apple pre-Jobs was an opportunity, as the business eventually executed under his watch.  It was never a "value trap".  It was poor execution that brought it down, and it was fine execution that restored its lustre.  At any time, any company can lose focus and start on a downward slide that may or may never be recovered.  That's all it is. 

 

So Dell's future isn't exposed to the predisposition of Apple, Microsoft, IBM or anyone else.  It's fate is ultimately decided by how the company executes every day going forward.  Do they get better?  Do they prolong their fate?  Do they succumb quicker than anyone thought?  The investor has to decide that based on qualitative factors, and then they have to decide if future cash flows or equity are adequate quantitatively.  It's why investing is as much art as science.  No such thing as a value trap.  Cheers!   

[compoundinglife]

Hey valueInv.  I just wanted to say that I really respect what you say in most of your posts, but, if you're implying medium to large companies will or can switch to Macs in the near future, I don't think you're quite right here.  Enterprise isn't going to switch anytime soon, if ever.

 

There is a shift of enterprises supporting Macs. Are people going to bail on Windows %100? No.

 

At GOOG, AMZN, and CSCO employees can get Macs. I was in a meeting with some execs from a Fortune 500 non-tech company and they all had Macs. Granted the later point is anecdotal evidence but the shift is there.

 

If you were to ask a Sun Microsystems engineer in 1994 if Solaris servers would be mostly replaced by Linux they would laugh you out of the room. Citing  things like support contracts, performance, reliability etc.... Linux pretty much killed most commercial Unix operating systems except for in highly specialized cases and the # of those cases is getting smaller. Not an apples to apples comparison but large scales changes can and do happen over time.

 

First, there are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

The number of PCs on oil rigs and airplanes is nothing compared to the enterprise desktop and laptop market. Legacy Windows apps that are not hardware specific can be virtualized or used through things like remote desktop and citrix metaframe. I have experienced the legacy apps quite a bit in the telco space and aerospace industries and while there are special cases, there are always ways for people to access to these systems.

 

Two, Macs cost too much to be deployed in scale and there's too much vendor lock in.  Battery died?  Well, send your laptop to Apple.  I hope you don't need it charged for your presentation tomorrow.

 

In a company deploying laptops at scale, they should have ability the replace and reimage machines very quickly such that the user does not need to wait for a replacement from Apple. If they don't, they are doing it wrong. I agree replacing a laptop for a dead battery is overkill, but I don't believe the additional cost is what you make it out to be. As for vendor lock in, that is a risk with an all Apple shop. But I think enterprises will mostly end up with a uneven split of Mac and Windows.

 

Three, Apple doesn't do pure enterprise.  Period.  What Windows offers, network management wise, just destroys what Apple offers.  There's no contest.

 

Windows and active directory offer WAY more in the form of management I agree. It is true that your helpdesk or windows sysadmin can with a click remove the marketing departments ability to change their wallpaper or their resolution. But at the end of the day I think the tools needed to support Macs in the enterprise are coming along. They can authenticate to Active Directory, IT can have remove access to the system. You can remotely wipe them.

 

Windows IT guys will not go down gracefully and will cite all of these reasons in response to allowing Macs on the network. But at the end of the day someone with director level approval will get an exception and that is how it starts.

 

Four, think incentives.  Many CIOs and other IT higher ups are MCSEs or have other forms of Microsoft certification.  Think they're going to throw out their accumulate knowledge just to "go Mac" anytime soon?  My guess is no.

 

They are not going to drive it. Their users will. It all starts with one department or group that gets an exception, they prove they can do their job with it and then it spreads. When public companies like CSCO and AMZN that are subject to SOX can pull it off, it slowly wears away the excuses CIOs have for not giving their users what they want. I have spoken to folks from an IB who mentioned they were working with Apple to do secure roll outs of apple devices. IT folks have tried to prevent this in the name of standards, compliance, security etc... They are slowly losing, at least from what I have seen.

 

So, like kevin4u said, I don't think you understand the stickiness of Windows.  It is very, incredibly sticky!

 

By the way, just for reference, I live in Silicon Valley, and I see all the Macs people use (and I use one myself!)  And, in a previous career, I was a Linux network software engineer for a larger networking hardware company.  So I'm not exactly a MSFT fanboy :).

 

Oh, and sent from my iPhone :D.

 

I realize this was in response to a different poster... but I felt the urge to respond. Yes Windows is sticky however, asserting that Apple can not make it in enterprise is foolish IMO. Apple can invest in integration with Windows Active Directory (they did it with activesync/exchange), if corporate usage increases they probably will invest some $$ in making OSX more corporate friendly. Maybe MSFT just decides that it will charge companies an additional per seat fee for every Mac they want to add on to their Active Directory. I am not trying to say that MSFT is facing certain doom. They have a really good moat, but there are ways to exploit it.

 

Don't forget that at some point folks were using mainframes and terminals. Employees started sneaking personal computers into the mix because they felt they could their job more effectively with them. I don't think anyone back then expected we would be where we are at today. Technology trends are hard to predict over the long term.

 

 

[Guest valueInv]

Why is Dell not a value trap?

 

No such thing as a "value trap." 

 

There is execution and no execution.  Cash flow or no cash flow.  Net equity or deficit.  The word "value trap" came into existence for a way for investment managers to excuse a mistake or for paying too much.

 

At some price, Apple pre-Jobs was an opportunity, as the business eventually executed under his watch.  It was never a "value trap".  It was poor execution that brought it down, and it was fine execution that restored its lustre.  At any time, any company can lose focus and start on a downward slide that may or may never be recovered.  That's all it is. 

 

So Dell's future isn't exposed to the predisposition of Apple, Microsoft, IBM or anyone else.  It's fate is ultimately decided by how the company executes every day going forward.  Do they get better?  Do they prolong their fate?  Do they succumb quicker than anyone thought?  The investor has to decide that based on qualitative factors, and then they have to decide if future cash flows or equity are adequate quantitatively.  It's why investing is as much art as science.  No such thing as a value trap.  Cheers! 

 

Ok, let me rephrase - why do you think Dell will execute?

[Guest valueInv]

Hey valueInv.  I just wanted to say that I really respect what you say in most of your posts, but, if you're implying medium to large companies will or can switch to Macs in the near future, I don't think you're quite right here.  Enterprise isn't going to switch anytime soon, if ever.

 

There is a shift of enterprises supporting Macs. Are people going to bail on Windows %100? No.

 

At GOOG, AMZN, and CSCO employees can get Macs. I was in a meeting with some execs from a Fortune 500 non-tech company and they all had Macs. Granted the later point is anecdotal evidence but the shift is there.

 

If you were to ask a Sun Microsystems engineer in 1994 if Solaris servers would be mostly replaced by Linux they would laugh you out of the room. Citing  things like support contracts, performance, reliability etc.... Linux pretty much killed most commercial Unix operating systems except for in highly specialized cases and the # of those cases is getting smaller. Not an apples to apples comparison but large scales changes can and do happen over time.

 

First, there are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

The number of PCs on oil rigs and airplanes is nothing compared to the enterprise desktop and laptop market. Legacy Windows apps that are not hardware specific can be virtualized or used through things like remote desktop and citrix metaframe. I have experienced the legacy apps quite a bit in the telco space and aerospace industries and while there are special cases, there are always ways for people to access to these systems.

 

Two, Macs cost too much to be deployed in scale and there's too much vendor lock in.  Battery died?  Well, send your laptop to Apple.  I hope you don't need it charged for your presentation tomorrow.

 

In a company deploying laptops at scale, they should have ability the replace and reimage machines very quickly such that the user does not need to wait for a replacement from Apple. If they don't, they are doing it wrong. I agree replacing a laptop for a dead battery is overkill, but I don't believe the additional cost is what you make it out to be. As for vendor lock in, that is a risk with an all Apple shop. But I think enterprises will mostly end up with a uneven split of Mac and Windows.

 

Three, Apple doesn't do pure enterprise.  Period.  What Windows offers, network management wise, just destroys what Apple offers.  There's no contest.

 

Windows and active directory offer WAY more in the form of management I agree. It is true that your helpdesk or windows sysadmin can with a click remove the marketing departments ability to change their wallpaper or their resolution. But at the end of the day I think the tools needed to support Macs in the enterprise are coming along. They can authenticate to Active Directory, IT can have remove access to the system. You can remotely wipe them.

 

Windows IT guys will not go down gracefully and will cite all of these reasons in response to allowing Macs on the network. But at the end of the day someone with director level approval will get an exception and that is how it starts.

 

Four, think incentives.  Many CIOs and other IT higher ups are MCSEs or have other forms of Microsoft certification.  Think they're going to throw out their accumulate knowledge just to "go Mac" anytime soon?  My guess is no.

 

They are not going to drive it. Their users will. It all starts with one department or group that gets an exception, they prove they can do their job with it and then it spreads. When public companies like CSCO and AMZN that are subject to SOX can pull it off, it slowly wears away the excuses CIOs have for not giving their users what they want. I have spoken to folks from an IB who mentioned they were working with Apple to do secure roll outs of apple devices. IT folks have tried to prevent this in the name of standards, compliance, security etc... They are slowly losing, at least from what I have seen.

 

So, like kevin4u said, I don't think you understand the stickiness of Windows.  It is very, incredibly sticky!

 

By the way, just for reference, I live in Silicon Valley, and I see all the Macs people use (and I use one myself!)  And, in a previous career, I was a Linux network software engineer for a larger networking hardware company.  So I'm not exactly a MSFT fanboy :).

 

Oh, and sent from my iPhone :D.

 

I realize this was in response to a different poster... but I felt the urge to respond. Yes Windows is sticky however, asserting that Apple can not make it in enterprise is foolish IMO. Apple can invest in integration with Windows Active Directory (they did it with activesync/exchange), if corporate usage increases they probably will invest some $$ in making OSX more corporate friendly. Maybe MSFT just decides that it will charge companies an additional per seat fee for every Mac they want to add on to their Active Directory. I am not trying to say that MSFT is facing certain doom. They have a really good moat, but there are ways to exploit it.

 

Don't forget that at some point folks were using mainframes and terminals. Employees started sneaking personal computers into the mix because they felt they could their job more effectively with them. I don't think anyone back then expected we would be where we are at today. Technology trends are hard to predict over the long term.

 

Great post! If there is the enterprise opportunity, a lot of startups will pop up to address the management hole. Just like MDM.

[Guest valueInv]

First, there are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

I don't know about oil rigs but many of the laptops controlling the Mars Rover seemed to be Macs.  :D

[Parsad]

Ok, let me rephrase - why do you think Dell will execute?

 

I don't think they will, I think they are doing it...that was the reason why I changed my opinion of them.  When I examined DELL a little over a year ago, I originally did not think they would be able to make the transition quickly enough.  Then when the stock tanked a few weeks ago, I re-examined the business and where their revenues were actually coming from...it looks like they are transitioning fine. 

 

Maybe not as fast as the markets would like, but they are generating more revenue from non-consumer related services and products.  The more recurring income they generate from those services, the more consistent their future cash flows will become.  The more contracts they hold, the stronger the moat gets.  There are no guarantees, but I'm betting that like Microsoft, they manage to squeeze more years out in cash flow than the market expects them to.  Cheers! 

[west]

First, there are too many custom legacy applications (let alone mission critical Windows specific documents!) out there for corporations to realistically make the switch.  That software running on your oil rig?  Yeah, it's not going "cloud" or Mac anytime soon.  So, Windows it is.

 

I don't know about oil rigs but many of the laptops controlling the Mars Rover seemed to be Macs.  :D

 

That's because engineers love macs (as laptops)!  They're UNIX underneath the hood, but we don't have to dick around with small stupid hardware configuration stuff like we do with other UNIX systems.  However, we can also maintain our own systems and network setups, and don't have to bother IT when things don't work quite right.

 

Let's agree to disagree.  I do offer this though: If MSFT does fall, within say the next twenty years or so, I will more than happy to meet up, say I was wrong, and give you one free beer :D.

[PlanMaestro]

Ok, let me rephrase - why do you think Dell will execute?

Maybe not as fast as the markets would like, but they are generating more revenue from non-consumer related services and products.  The more recurring income they generate from those services, the more consistent their future cash flows will become.  The more contracts they hold, the stronger the moat gets.  There are no guarantees, but I'm betting that like Microsoft, they manage to squeeze more years out in cash flow than the market expects them to.  Cheers!

 

Exactly the same reason why Dell is in my very short list so maybe we are not so crazy. It's taking them longer than expected but they are almost there. And I have to say, once upon a time I was skeptical.

 

http://variantperceptions.wordpress.com/2009/10/12/turnaround-lessons-when-the-tough-gets-going/

 

From that list of 7 companies in 2009: 3 are bankrupt (Kodak, Mesa Airlines, Anthracite), 3 have gone nowhere (Dell, Yahoo, Newell Rubbermaid), and only one has started to recover recently (The Gap). From all those, Dell has had the best execution and its plan, compared with what they were showing in 2009, seems to have a very reasonable probability of success.

 

 

The first time I heard the term value trap I could not understand what it meant. I think I can now define one specific situation for a value trap: a good company with a deteriorating profitability driven by external forces with a good management destroying value because they are fighting with a plan against the odds with the hope that it will succeed.

 

 

[Parsad]

The first time I heard the term value trap I could not understand what it meant. I think I can now define one specific situation for a value trap: a good company with a deteriorating profitability driven by external forces with a good management destroying value because they are fighting with a plan against the odds with the hope that it will succeed.

 

You see, I don't agree with that description.  Because there are a number of cases where this has not been true and some I've invested in.  Recent ones...Steak'n Shake was a good example...why is it that it turned around under Sardar, but not previous management?  Apple...how did it go on to become the most valuable company in history when Jobs took over again?  Frisch...the Golden Corral acquisition and expansion was just plain dumb and hurt the company...they came to their senses and sold the business, and the company is in better shape than ever. 

 

I think almost in virtually every case of a story I hear about a "value trap", it's because management made poor decisions or sat on their hands thinking they were invincible.  Dell has been incredibly proactive trying to change their business model.  Cheers! 

 

 

 

[PlanMaestro]

The first time I heard the term value trap I could not understand what it meant. I think I can now define one specific situation for a value trap: a good company with a deteriorating profitability driven by external forces with a good management destroying value because they are fighting with a plan against the odds with the hope that it will succeed.

 

You see, I don't agree with that description.  Because there are a number of cases where this has not been true and some I've invested in.  Recent ones...Steak'n Shake was a good example...why is it that it turned around under Sardar, but not previous management?  Apple...how did it go on to become the most valuable company in history when Jobs took over again?  Frisch...the Golden Corral acquisition and expansion was just plain dumb and hurt the company...they came to their senses and sold the business, and the company is in better shape than ever. 

 

I think almost in virtually every case of a story I hear about a "value trap", it's because management made poor decisions or sat on their hands thinking they were invincible.  Dell has been incredibly proactive trying to change their business model.  Cheers!

 

Looks like we are not that far away Sanjeev.

 

That is why the emphasis is on the risky plan part (gambling behavior) not on management.  If this "value trap" thing includes companies with bad management ... it's not a trap it's just a bad pick.

 

But Dell's new model success wasn't that clear three years ago. Hey, some even doubt it today. It was a complete business model change despite my greatest respect for management. Today ... you can start seeing the light.

[tombgrt]

From a $30b+ market cap to $19b in six months while the market rallies, intriguing. Will also be interesting to see how much shares they have bought back in the current quarter. Somehow I doubt they are buying more now than six months ago.. I do of course, understand that it isn't so simple. They have to consider additional options and agressively buying back shares might limit other future options. But somehow you always see the general company, even with decent management, buying back shares too high when they should just sit on their hands (not speaking of the last few months for dell of course).

 

What are people's views of M. Dell as a capital allocator considering the acquisitions, buybacks, dividends now,...? (It seems like they are making the right moves business wise tho, no complaints there. It's just a tough business.)

[PlanMaestro]

What are people's views of M. Dell as a capital allocator? (It seems like they are making the right moves business wise tho, no real complaints there. It's just a tough business.)

 

Michael Dell has been aggressively buying back and made a huge buy himself a couple of years ago at similar prices. He is a very concrete and no-nonsense ROIC guy and over the years has made some tough decisions. For example, in the early 90s they decided to focus on the direct channel exclusively (negative working capital insight) and the turnaround was remarkable making it the best performing stock of the 90s.

 

Now, how much cash flow has been spent the last 5 years buying back stock at higher prices and acquiring companies?

 

I don't have the exact numbers but it has to be pretty substantial. At the time, they had the option of distributing that cash and resign themselves to a slow liquidation. 5 years ago they had to be pretty sure their turnaround plan was going to work and, at least for me, it was not that clear ... but they have executed pretty well.

 

 

 

[A_Hamilton]

What are people's views of M. Dell as a capital allocator? (It seems like they are making the right moves business wise tho, no real complaints there. It's just a tough business.)

...He is a very concrete and no-nonsense ROIC guy and over the years has made some tough decisions.

 

See, this is what I believed until the recent announcement of a quarterly dividend after years of repurchasing stock at prices that are significantly higher than current levels. Now, I know many will argue that it only costs ~$500 million per year to do the dividend, but in my mind initiating a dividend after all of the higher priced repo's is a tacit admission that you purchased stock at too high of a price previously or that you don't know what you are doing on the capital allocation front!

[tombgrt]

This was what I was getting at A-Hamilton. The issuance of a dividend was an obvious hint that capital allocation might not be all that great. It seems to me that if they lower buybacks now, that would only reinforce my thoughts on capital allocation at Dell. Why issue dividends now with the business priced at 4-5xFCF and the need to get acquisitions at reasonable prices to increase market share and moat when the opportunity arises?

 

Thank you for your input PlanMaestro, I appreciate it.

[A_Hamilton]

This was what I was getting at A-Hamilton. The issuance of a dividend was an obvious hint that capital allocation might not be all that great. It seems to me that if they lower buybacks now, that would only reinforce my thoughts on capital allocation at Dell. Why issue dividends now with the business priced at 4-5xFCF and the need to get acquisitions at reasonable prices to increase market share and moat when the opportunity arises?

 

Thank you for your input PlanMaestro, I appreciate it.

Tombgrt,

I don't know if you are a shareholder or not, but for what its worth I about jumped thru the phone at DELL IR the day of the announcement. I'm sure Longleaf was just in pure shock.

[ERICOPOLY]

See, this is what I believed until the recent announcement of a quarterly dividend after years of repurchasing stock at prices that are significantly higher than current levels. Now, I know many will argue that it only costs ~$500 million per year to do the dividend, but in my mind initiating a dividend after all of the higher priced repo's is a tacit admission that you purchased stock at too high of a price previously or that you don't know what you are doing on the capital allocation front!

 

To me it's a non-issue.

 

Company buys shares -> shareholder sells offsetting position ->  X amount of cash in hand

Company pays dividend -> X amount of cash in hand

 

X equals X.

 

Only matters when taxes get involved.

 

[oldye]

I think Dell is strictly a capital allocation play, they're taking money out of a dying business and investing it in higher margin business's, share buybacks and dividends.  The share buybacks done at current levels are very shareholder friendly and I would love to see them buy back a few billion dollars worth of shares at these prices but realistically we'll probably only see 12-20 million shares bought this quarter.  The higher margin business's at Dell currently have about 20 billion in revenues and generate more than 2 billion a year in profits and are growing nicely.  The computer business is in decline but still capable of generating nice cashflow and at this point is worth less than nothing according to Mr. Market.  I'm not sure why anyone is still talking about pc's vs macs when it comes to dell...