DELL - Dell Inc.

[smathew]

Yes.  Like MSFT for Skype, HPQ for Autonomy.

But Quest is a California based company .

[valuecfa]

Regardless of the issues, the valuation is compelling. Made Dell a 1% position today...will add if it goes lower.

[Viking]

Stock is trading at about $9.50.

Net cash is about $3.30/share (thanks T-Bone1)

Dell estimates they will earn at least $1.70 this year

PE = 5.6; PE (net of cash) = 3.65

 

The million $ question is: where is the consumer & enterptise PC business going? Is the recent slowdown temporary or are we on the edge of a big cliff. My read is Mr Market is thinking a big cliff is up ahead: PC sales will get worse and earnings for Dell will be way down next year and get worse (RIMM part two). 

 

It will be interesting to see how much lower DELL and HPQ go over the next month or two. Tax loss selling may take them lower yet. Should earnings guidance for 2013 disappoint (when companies start releasing results next week) then I would weakness in the general market.

 

I think FFH and Southeastern continue to hold there shares.

 

Looks like a classic 'bet on the jockey' type of stock. I do like Micheal Dell. I have established a position and will continue to read and learn...

 

I listened to a few video's from HPQ and I will not be touching that stock (not as confident in the business or management). 

[T-bone1]

T-bone1,

  Can you please explain how dell is able to use some of it  it's overseas cash for quest acquisition without repatriating it ?

 

I believe that because the majority of Dell (and now Quest's) business is oversees, they found a way to pay for that portion of the business with oversees cash.  I would imagine that Quest or anyone else setting up a company that might be sold to a large tech (who all have a ton of oversees cash) would domicile a subsidiary oversees to make this easier.

 

I believe they were asked a question about this on the Quest conference call

[T-bone1]

 

Dell's services business alone is worth somewhere between $16bn - $22bn. 

 

An estimate of FCF generated by service business ?

 

FCF will be down this year both because of lower revenues, but also because of a reversal of part of their negative working capital.

 

I don't include the change in working capital in my estimate of FCF (but I do discount the negative float in my estimate of excess cash).

 

I think the "core dell" has FCF this year of $1.35 billion and the "new dell" has FCF of $2.0 billion.  These numbers are before changes in working capital, but are net of stock comp expense.

 

Dell doesn't come close to breaking this stuff out and these numbers required a lot of assumptions on my part, so caveat emptor!

[Guest valueInv]

On the "Inorganic growth success" slide, they call out $9.3B in post-aquistion revenue from 2009-2012:

 

http://i.dell.com/sites/content/corporate/secure/en/Documents/Consolidated_Deck_web_final.pdf

 

If you look at revenue growth in the same period for their non-pc businesses, it is $3.6B. Since they didn't buy any companies for their pc business, that would mean their organic revenue for these businesses declined by $5.7B? Am I reading the numbers right?

 

 

I know they lost some revenue from the EMC resale business, but their storage business was only about $2.6B in 2009, so that doesn't explain it.

[T-bone1]

On the "Inorganic growth success" slide, they call out $9.3B in post-aquistion revenue from 2009-2012:

 

http://i.dell.com/sites/content/corporate/secure/en/Documents/Consolidated_Deck_web_final.pdf

 

If you look at revenue growth in the same period for their non-pc businesses, it is $3.6B. Since they didn't buy any companies for their pc business, that would mean their organic revenue for these businesses declined by $5.7B? Am I reading the numbers right?

 

 

I know they lost some revenue from the EMC resale business, but their storage business was only about $2.6B in 2009, so that doesn't explain it.

 

I think that is the total amount of revenue to date from those acquisitions, not the amount in 2012.

[VAL9000]

 

Dell's services business alone is worth somewhere between $16bn - $22bn. 

 

An estimate of FCF generated by service business ?

 

About $1,400mm.

 

I didn't see anything that breaks out the operating expense by line of business (product vs. service), so I assumed 17% of revenue which is on the high side for services firms (selling, marketing, etc. - this is roughly Accenture's number).

 

 

[Ghost]

http://sec.gov/litigation/complaints/2010/comp21599.pdf

 

1.  The SEC brings this action for various disclosure and accounting violations

involving Dell Inc. ("Dell") from 2001  to 2006.  Dell's disclosure violations, which relate

primarily to Dell's receipt of large payments from Intel Corporation ("Intel"), fraudulently

misrepresented the basis for Dell's impr~ving profitability.  Dell's separate fraudulent and

improper accounting during this time period wrongfully made it appear that Dell was consistently

meeting Wall Street earnings targets and reducing its operating expenses through the company's

management and  operations. 

 

If mgmt is willing to play with the numbers, one wonders what else they are up to.

[Guest valueInv]

On the "Inorganic growth success" slide, they call out $9.3B in post-aquistion revenue from 2009-2012:

 

http://i.dell.com/sites/content/corporate/secure/en/Documents/Consolidated_Deck_web_final.pdf

 

If you look at revenue growth in the same period for their non-pc businesses, it is $3.6B. Since they didn't buy any companies for their pc business, that would mean their organic revenue for these businesses declined by $5.7B? Am I reading the numbers right?

 

 

I know they lost some revenue from the EMC resale business, but their storage business was only about $2.6B in 2009, so that doesn't explain it.

 

I think that is the total amount of revenue to date from those acquisitions, not the amount in 2012.

 

You're right, my bad. Even so, a bigger portion of those revenues are likely to have come in the later years, pointing to a decline in organic revenues.

[T-bone1]

I'm not sure what the answer is, it looks like Perot (the biggest acquisition) had $2.8 billion in revenue in 2008.  Maybe this went down a lot in 2009 . . .

 

From wikipedia: H. Ross Perot and eight associates founded Perot Systems in June 1988 after having sold EDS to General Motors. Before its acquisition by Dell Inc. in September 2009, Perot Systems was a Fortune 1000 corporation with more than 23,000 associates and annual revenue (2008) of $2.8 billion. The company maintained offices in more than 25 countries around the world, including the United States, Europe, India, China and Mexico.[3]

 

I need to look into this more

[shalab]

Inverted question on DELL on how the company can be destroyed, I am sure you have thought about this...

 

  - what could happen to Dell if others enter/expand into services - think Microsoft, Oracle and Cisco

  - can HPQ/IBM eat more of Dell's business in servers and servicing

  - Asian competitors will compete vigorously everywhere - Lenovo, Acer and India service companies

 

[ERICOPOLY]

I noticed some fairly heavy insider selling around $17 in Feb/March.  Tu, Felice and Schuckenbrock appear to have found an urgent reason to sell over 2/3 of their shares.  Fair value or did you sniff a business slowdown on the breeze?

 

http://www.nasdaq.com/symbol/dell/insider-trades

 

Swainson was buying his first shares for $17 at that time -- he is probably obligated to purchase those shares given his seniority as head of software.  He was only just joining the company at the time.

 

[BargainValueHunter]

http://www.businessinsider.com/software-defined-networking-explainer-2012-10

 

Software-defined networking, or SDN, is a new technology that has the hardware industry in a tizzy. But what exactly is it?

 

To answer that, we talked to networking veteran Arpit Joshipura, Dell's vice president of marketing for its networking business.  He shared the graphic below.

 

Networking hardware is a $37 billion market, and everyone from Cisco and Lucent to Dell and HP and even software players like Oracle and VMware are angling for a piece of it.

 

Software-defined networking could seriously upend the way networking hardware is bought and sold, favoring cheaper, simpler boxes running more sophisticated software.

 

http://static6.businessinsider.com/image/506f27c5eab8ea672d000000-900-517/dell-software-defined-networking.png

 

...and in case this hadn't been posted:

 

http://www.infoworld.com/d/virtualization/dell-sdn-wont-turn-enterprise-switches-commodity-gear-3-5-years-201427

 

"Three years ago, the big driver of SDN was, 'If I do this, I'll get $1,000 switches,'" Joshipura said. However, cheaper gear isn't the current payoff for those deploying SDN, because most implementations will remain in hybrid networks with traditional gear for a long time, he said.

 

"For the next three to five years, until we get to mainstream SDN, cost is not the primary driver of SDN," Joshipura said.

 

Today's enterprise switches need to make many decisions on their own, which requires they be equipped with sophisticated, expensive ASICs (application-specific integrated circuits). SDN is designed to eventually put all network decision-making in controllers, which can be implemented in software and run on standard x86 servers. Easier data-center management and new network capabilities are also seen as eventual benefits of SDN.

 

However, most organizations will migrate to SDN over a long period while holding on to their investments in traditional gear, Joshipura believes. In fact, SDN has barely cracked live deployment so far, being implemented primarily in higher education and in Web companies, he said. Mainstream enterprise adoption will require more enhancements and standardization. "Slowly logic moves out from the switch into a controller," Joshipura said.

 

 

 

[alwaysinvert]

So if Dell had a 4% dividend it would be worth buying, but now it's too risky. Hear more:

http://soundcloud.com/investorplace/dell-hp-apple

 

It's kind of interesting as a market barometer. Let's wait for some good news. We'll miss the first 10% but catch the next 100%!

[bathtime]

Fwiw, DELL triggered a second RSI buy at $9.66 on Friday.

 

http://rsi.caracommunity.com/RSIApp/RSIApp.html#dell

 

"Buy alert (trig. 1 days ago [on 2012-10-05 at $9.66, +0.00% chg], after a 10 day AZ)"

 

First one triggered last month at around $10.80.

 

I don't interpret the triggers as having cumulative value, more that the first one failed. And they may have diminishing value.

 

NB: In a way I see this tool as like a measurement of sentiment on a stock.

 

Please return to the fundamentals now. ;)

 

 

[LC]

Fwiw, DELL triggered a second RSI buy at $9.66 on Friday.

 

First one triggered last month at around $10.80.

 

I don't interpret the triggers as having cumulative value, more that the first one failed. And they may have diminishing value.

 

NB: In a way I see this tool as like a measurement of sentiment on a stock.

I think the claim that the "first one failed" is relative to your investment mindset. Of you buy a stock based on this indicator and it goes down, then yes it failed. If you buy the stock because you believe it is fundamentally undervalued, then the RSI indicator would be circumstantial evidence that would support your buy decision. 

[bathtime]

Agreed, I couldn't decide whether to put "failed" in quotes or not.

 

As Bill Cara emphasizes, the tool is an aid in conjunction with the underlying fundamental picture, so its application is an art.

 

One thing I have noticed is that the higher quality the company, the better the tool's success in timing a bottom. Which makes sense, a company like XOM, PM, or V have more certainty to their business and will likely get less oversold relative to a small cap, for example. Those are the jewel-like opportunities with this tool - to buy a blue chip at an excellent price like XOM in the $50s, V in the $60s, and PM in the $30s.

 

For me the tool has two primary utilities with a quality company - a) giving me patience to not buy too early, and b) buying in a range that MAY be in the vicinity of a bottom.

 

 

 

 

[Guest valueInv]

Didn't get a reply on the other thread, so reposting here to see if anybody had comments:

 

Here's another analysis of Dell using the same theory...assume the PC business is worthless, and do a valuation estimate!  Cheers!

 

http://seekingalpha.com/article/897521-dell-too-cheap-to-ignore?source=yahoo

 

Two questions:

 

1, Assuming the PC business is worthless. Based on the latest investor presentation, Dell predicts about $27.5B in ES&S revenue in 2016 :

http://i.dell.com/sites/content/corporate/secure/en/Documents/Consolidated_Deck_web_final.pdf

 

Assuming a 10% growth rate, you have $30B in ES&S revenue in 2017, not $41B. At 13% operating margins, you have $3.9B in

operating income in 2017.

 

Now that is assuming a 10% growth rate (including Dell's promised numbers). If you were to give yourself a margin of safety and assume a 7.5% growth rate, you end up with $27B in 2017 ES&S revenue and not $30B. Shouldn't we be using $3.5B in 2017 operating income?

 

I'm guessing the discrepancy is because people are including EUC driven revenue (software and peripherals, pc support services) in ES&S?

 

2, For the D+M business he assumes 22% gross margins in 2017. How reasonable is this? If unit sales are dropping and there is over capacity in the industry, shouldn't GMs drop even faster?

[cayale]

Why would one assume 10% growth when the market is not growing that fast?  Acquisitions?  And if so, doesn't the price paid for this growth become quite crucial?  Has DELL proven to be a shrewd acquirer?  Are all service businesses created equal?  You hear alot of about the value of HPQ's service business, but it has been stagnant even as the market recovers.  So can you value HPQ's or DELL's service business like you would ACN?  This is a competitive business.  Margins are thin and contracts can be long.  If you are growing by undercutting price you could wake up one day with large writedowns.

 

 

Growth was 10%+ for the best of the best coming out of the recession but I do not think you can assume it will be so perpetually.  Even top-tier industry standards like ACN are not growing 10% and don't necessarily expect to do so on a comparable basis over time.  Why should DELL?

 

I have no dog in this fight, but peripherally, I hear a lot about the service business being so great.  It's only great if it is being operated well.  And the non-hardware (independent) tied services players in the space (ACN, GIB, CTSH, etc.) are no pushovers.  They're running circles around DELL and HPQ's service businesses in terms of revenue growth.

[boilermaker75]

 

Growth was 10%+ for the best of the best coming out of the recession but I do not think you can assume it will be so perpetually.  Even top-tier industry standards like ACN are not growing 10% and don't necessarily expect to do so on a comparable basis over time.  Why should DELL?

 

 

Cayale,

 

I took a quick (2 minute) look at ACN and it looks interesting. EV of $38.35 billion and a TTM FCF of $3.536. Nice steady growth in revenue, form $21.45 billion to $29.66 billion, and FCF, from $2.27 billion to $3.536 billion, over the last five years. I did a search and no threads on ACN. Do you own ACN? Is ACN worth a thread?

 

TIA,

 

Boiler

[cayale]

Maybe.  I own it but not quite a buyer today.  Great company, good business, about $4.50 +/- p/s in FCF and $7 or so of net cash.  Not dirt cheap multiple but a high quality company.  As I asked around the industry, folks indicated it is better to be independent than tied to a specific hardware or software product.  They have the ability to pay out all FCF in the form of dividends and share repurchase.  Many years they come pretty close to doing so.

 

EV is closer to $43B as a result of former partner shares that convert into regular common shares.

[txlaw]

http://www.bloomberg.com/news/2012-10-09/at-t-shares-network-with-ibm-to-lure-more-customers-to-the-cloud.html

 

Pretty interesting to see IBM working hand in hand AT&T.  This shows that the "carriers" are continuing to expand into the provisioning of cloud infrastructure/services to their customers. 

 

One wonders what DELL's approach will be to working with the carriers.

[LC]

What does the board (especially those who are long DELL) think about the two qualitative issues I present:

 

1. This claim brought against DELL by the SEC that they accepted money from Intel to use Intel CPUs exclusively. Going far enough as having top Dell executives literally calling Intel to ask for money to meet analyst estimates?

PDF Here: http://sec.gov/litigation/complaints/2010/comp21599.pdf

 

2. The recent litigation against Jon Horvath of SAC Capital of passing on insider information from DELL to SAC Capital? What do members who are long DELL think of the fact that insiders disclosed this information?

 

Are these issues in the far past? Or does this culture still exist at Dell? Does it make a difference?

 

[Guest valueInv]

Or does this culture still exist at Dell? Does it make a difference?

 

If the culture still existed, how would we even know?

 

It would make a big difference because the thesis for Dell rests on management's promises and Michael Dell's reputation (certainly not their track record). If you can't trust either, then the thesis collapses.