DELL - Dell Inc.

[txlaw]

To start off:

 

http://tech.fortune.cnn.com/2012/07/17/michael-dell-transcript/

[Guest rimm_never_sleeps]

mr dell is a competitive advantage? the stock is trading where it was 15 years ago. IBM management is a competitive advantage. I would say they knew where things were going. Dell did not.

[Parsad]

mr dell is a competitive advantage? the stock is trading where it was 15 years ago. IBM management is a competitive advantage. I would say they knew where things were going. Dell did not.

 

I would say neither knew what was going to happen:

 

http://finance.yahoo.com/echarts?s=IBM+Interactive#symbol=ibm;range=19960611,20121001;compare=dell;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

 

And since when is stock price solely an indicator of anything?  Be it five years ago or fifteen years ago.  Cheers!

[QLEAP]

Rather than respond directly to some of the more inflammatory and unhelpful posts/remarks, I will reply generally to the more legitimate questions and comments I am hearing about DELL.

 

Focus on the Qualitative, Not Quantitative

 

Keep in mind that I started this thread because I was asked to start an official DELL thread.  So I put an abbreviated (yet somehow long-winded) thesis up on the board and focused on what I thought was the heart of the matter. 

 

And the heart of the matter, IMO, is to understand the qualitative aspects of this investment rather than focus solely on numbers because past numbers and current numbers (or, at least, current rate of change in numbers) don’t necessarily give you a great idea of where DELL as a business is going.  Indeed, the nature of a company like DELL that is transforming itself is that if there is an inordinate focus on numbers – especially quarterly numbers – you will incorrectly assess whether the particular actions the company is taking to transform the business are being properly made.  It’s important to read articles about the company, listen/read CCs, research into technology trends, and pay close attention to the actual strategic decisions of the supposedly transforming company.  You can’t just understand this investment by reading quarterly filings.

 

I’ve tried my best to discuss these qualitative aspects not just on this new thread, but on threads across the board.

 

Dell M&A: Burning Cash or Buying Platforms?

 

Some have questioned whether or not the numbers bear out some of the claims made by DELL and have indicated that anyone who is long DELL cannot figure out whether or not the thesis is supported by the numbers because DELL doesn’t give that info out.  Well, take a look at the Dell Analyst Meeting presentation and transcript, both of which are up on the web.

 

Cash used to fund M&A since ‘08 = $10.3 B.  Revenue delivered by acquired companies = $9.3 B.  We have to ask ourselves: what does this translate into in terms of replacement revenues and therefore profits?  Is Dell successfully acquiring business lines and scaling them up?  Is the 15% IRR target of M&A all talk or legit? 

 

By all means, trust but verify.  I would take Dell Storage and try to reverse engineer that line of business, which has been put together inorganically (i.e., through M&A).  By reverse engineer, I don’t just mean look at the trajectory of Dell IP-Storage revenue and associated margins, as well as purchase price for the compainies (though you should certainly do that if you wish).  Also take a look at the technologies they are acquiring and see if it makes sense in the context of portfolio building and an end-to-end solutions model. 

 

Ultimately, we have to decide whether DELL is buying platforms or burning cash.  This is a hugely important question and is central to the DELL thesis.  I believe that platforms are being built.  Others believe that cash is being burned.  Time will out the truth.

 

Transformation vs. Turnaround and Adaptation in the Tech Biz

 

DELL is undergoing a transformation, not a turnaround.  Transformation is everywhere in the tech world.  It’s not just DELL.  It’s INTC.  It’s CSCO.  It’s MSFT.  It’s CMCSK.  It’s FTR.  It’s T and VZ.  It’s AMZN.  It’s any number of companies that must pay attention to rapidly changing technologies and redeploy capital generated into R&D and new business lines so that they don't evaporate.  Only the paranoid survive. 

 

But transformation isn’t just relegated to the tech world.  Even so-called stalwarts transform themselves.  I pointed out the other day that KO once used to sell sugared soda water but now it has a portfolio of hydration products that it sells across the world.  The KO portfolio was not just created organically – M&A was involved.

 

Tech is more precarious though for sure.  I think that DELL is well positioned to be on top of changing technologies and changing business needs, and the actions that they are taking seem to bear some evidence that they are seeing further into the future than most and trying to capitalize on that foresight.

 

Again, I urge people to take a look at how DELL has built its storage platform.  Take a look at Equallogic, Compellent, Ocarina, Exanet, and RNA Networks.  Take a look at current parnerships, such as the one with Fusion i-o (a company in which Dell was an early investor).  Take a look at the venture capital arm that is focusing on storage startups.   

 

Ask yourself whether there really is a long runway for growth in the storage business in light of the data explosion, and whether the rise of public cloud providers portends the doom for players like DELL.  I don’t believe the rise of AMZN, GOOG, and others means that DELL’s storage business will die.  Instead, I see them continue to increase their absolute sales in a pie that is growing at a huge rate.  Saying well DELL is going to bump into GOOG or AMZN or FB is “like swimming around in Lake Michigan and asking did you bump into each other.” 

 

If you think Dell doesn't care about IP or R&D after looking at who they have acquired acquiring, well, I'm not sure what to say to you.  Most of the innovative tech companies today (GOOG, MSFT, AAPL, IBM) have acquired rather than built some of their most important IP, and DELL is no exception.

 

Avoiding Getting Crushed: Focus on SMB/Mid-Market and Important Verticals

 

It has been suggested that DELL will be crushed by the likes of the IBMs, HPs, Oracles, and Ciscos of the world. 

 

But one of the ways that DELL is mitigating this risk is by focusing on underserved markets: SMB and the Mid-market.  And not just in the developed world.  They’re laying the groundwork to be relevant to SMB and the mid-market across the world.  One of my favorite graphs is one that Intel put out showing how the PC penetration rate is directly correlated with shrinking months of income to buy a PC.  Well, if you’re optimistic about how income will grow over the long run in some of the markets that DELL is in, then you should like how they are preparing for that future.

 

I also like how they focus on certain verticals that I believe have lots of growth ahead of them and that are in need of the end-to-end solutions that Dell provides.  Dell does a great job in the healthcare vertical and they’re focusing in on the energy sector as well.

 

Optimizing Legacy Businesses and Redeploying the Cash Generated

 

DELL’s legacy business (Legacy Business == End User Computing) is being optimized for cash flow, while remaining a part of the end-to-end solutions portfolio.  (Incidentally, End User Computing has shrunk as percentage of revenue from FY’08 to FY’13.) 

 

Some of have suggested that DELL should have sold off the PC business.  Michael Dell disagrees.  In fact, Michael Dell famously criticized HP for Apotheker’s decision to spin off the Personal Systems Group, noting that the client business provides enormous scale and buying power, which would go away and make HP’s cloud hardware portfolio much higher cost.  After all, according to Dell, a huge percentage of disk drives, processors, and memory go into PCs, not cloud hardware.  Cisco apparently agreed with Dell and in an internal memo criticized HP’s decision, arguing that divesting the PSG group would create a number of problems that would affect HP’s own end-to-end solutions strategy, including weakening the relationship between HP and small and medium businesses, and public sector and education customers.  The Cisco memo even showed how IBM’s cloud hardware business deteriorated in operating metrics when it spun off its PC unit.

 

So instead, Dell is cheerfully optimizing its end user computing portfolio and using free cash generated to focus on buying and building services and software capabilities, so that it can truly be an end-to-end solutions provider.  And by keeping the distribution network from shrinking (e.g., by selling off the end user computing biz), Dell preserves the ability to get operating leverage to work for it in a future with a much higher revenue mix dedicated to services and software. 

 

I think that’s the right call.  Again, time will tell.

 

---------

 

There have been many good rejoinders to some of the other comments made within other threads.  Thoughts on BYOD, the future of hardware versus software/services, public versus private clouds, and more issues are spread across various threads on the board.  It’s worthwhile looking into these and paying attention to the many good comments that have come across the wire.

 

All the best to those who are long DELL.  I'm going to try to avoid getting into more p$!#ing contests with folks who disagree with me, so I will lay low on providing opinions and will instead just post news and updates if I see anything good.

 

txlaw, I have followed your posts on Dell and you have elaborated on the thesis as best as you can. thanks for sharing.

 

cheers,

Qleap

[Guest valueInv]

Here are some datapoints to consider:

 

http://techcrunch.com/2012/10/01/remember-ultrabooks-yeah-that-was-a-good-time/

http://www.channelworld.in/news/microsofts-big-gamble-windows-8-wont-pay-enterprise-says-gartner-244852012

http://gigaom.com/cloud/oracle-cloud-takes-vendor-lock-in-up-a-notch/

 

[Guest valueInv]

 

Nobody is going to do the work for you.  It would be too cumbersome to break everything down, especially if your audience is just going to say, it's in the too hard pile and I haven't read the 10-K.

 

I'm asking questions that others that HAVE read the financials completely sure are having as well. I only read 2 10-Q's a year ago or so, obviously I'm not up to date. I don't see why I can't ask questions that will benefit everyone reading this topic when answered.

 

Anyway, I'll stop bothering you. ValueInv seems to have some of the same remarks and I'll leave it to him as he is far more knowledgeable about the subject. His last post was very insightful imo and he gives some clear figures that put things into perspective, no promo-talk. I'll follow this thread closely, I appreciate the discussion.

 

I don't think you can have a meaningful discussion on Dell without the numbers. After all, this is a value investment board.

 

One more important point- Dell is not a turn around story. A turnaround looks to fix an existing business. Dell is not turning around its existing pc business. Instead, they're trying to build new services / software business. When you buy Dell based on the growth story, you are acting like a VC .

You're betting on Dell making right acquisitions, integrating them and competing successfully in new businesses in nascent markets.

 

That thesis is not a value investment.

 

I think if you invested in Compellent at the ground level, you might be a VC.  But to purchase Compellent and immediately push it into your channel, you are acting more like a reseller (only you now happen to own the product).

 

They had experience selling an EMC storage product, and now they sell a Compellent product instead.

 

The difference in ownership is that you have more control over the engineers.  This should help you make customized solutions.  In theory anyway.

Compellent is a swap in product for their existing sale channels, but how many of their acquisitions are swap in or replacements?

[Guest valueInv]

When you invest in tech companies, you invest in companies that function in an environment of shifting sands. Trying to hang a MOS in this kind of environment is treacherous. Assets, customer relationships, etc disappear quickly. Thats why I think Warren Buffet is smart to keep away from tech.

 

By "keep away from tech", do you mean to say that IBM isn't tech, but rather it's more of a solutions company or a "human platform" company?

 

The Economist article linked above finishes with the following comment:

 

The human platform has an important drawback: it is expensive to maintain and to extend, says Carl Claunch of Gartner, a market-research firm. That also means, however, that it is costly for others to replicate or invade. And given the complexity of the world and how much of it is still to be digitised, IBM's human platform looks unlikely to reach its limits soon. Perhaps not for another 100 years.

 

Do you similarly regard DELL's strategy one of building a human platform?  They are sort of similar.  Buffett went with the entrenched leader, so he gets a margin of safety in that "costly for others to replicate or invade" part.  Then he gets the "human platform unlikely to reach its limits soon" part mostly at low risk.

 

So, DELL could be discussed in terms of what added upside you get vs just buying IBM.  Clearly DELL has more potential to grow in terms of market share, both have same opportunity to ride along at the speed of the industry growth.  So in buying DELL you are betting on the company growing share and hoping that the PC business sticks around for a while given that it's a fountain of funds for as long as it lasts (even if the Longleaf guys claim not to care that it goes away, I think they obviously do care as it provides ammo to buy more pieces in the services platform).

 

Buffet went with an established business that is so diversified that it will be able to weather most storms. Dell is a company undergoing a transformation and will take decades to build up that kind of diversification.

 

Clearly, there is a huge upside if Dell acquires the right companies, integrates them successfully and uses the acquired technologies to compete successfully. There is an attractive e upside even if they maintain their current non-pc business The upside will take care of itself. The question I am focused in is what are the downsides?

[ERICOPOLY]

Rather than respond directly to some of the more inflammatory and unhelpful posts/remarks, I will reply generally to the more legitimate questions and comments I am hearing about DELL.

 

Focus on the Qualitative, Not Quantitative

 

Keep in mind that I started this thread because I was asked to start an official DELL thread.  So I put an abbreviated (yet somehow long-winded) thesis up on the board and focused on what I thought was the heart of the matter. 

 

And the heart of the matter, IMO, is to understand the qualitative aspects of this investment rather than focus solely on numbers because past numbers and current numbers (or, at least, current rate of change in numbers) don’t necessarily give you a great idea of where DELL as a business is going.  Indeed, the nature of a company like DELL that is transforming itself is that if there is an inordinate focus on numbers – especially quarterly numbers – you will incorrectly assess whether the particular actions the company is taking to transform the business are being properly made.  It’s important to read articles about the company, listen/read CCs, research into technology trends, and pay close attention to the actual strategic decisions of the supposedly transforming company.  You can’t just understand this investment by reading quarterly filings.

 

I’ve tried my best to discuss these qualitative aspects not just on this new thread, but on threads across the board.

 

Dell M&A: Burning Cash or Buying Platforms?

 

Some have questioned whether or not the numbers bear out some of the claims made by DELL and have indicated that anyone who is long DELL cannot figure out whether or not the thesis is supported by the numbers because DELL doesn’t give that info out.  Well, take a look at the Dell Analyst Meeting presentation and transcript, both of which are up on the web.

 

Cash used to fund M&A since ‘08 = $10.3 B.  Revenue delivered by acquired companies = $9.3 B.  We have to ask ourselves: what does this translate into in terms of replacement revenues and therefore profits?  Is Dell successfully acquiring business lines and scaling them up?  Is the 15% IRR target of M&A all talk or legit? 

 

By all means, trust but verify.  I would take Dell Storage and try to reverse engineer that line of business, which has been put together inorganically (i.e., through M&A).  By reverse engineer, I don’t just mean look at the trajectory of Dell IP-Storage revenue and associated margins, as well as purchase price for the compainies (though you should certainly do that if you wish).  Also take a look at the technologies they are acquiring and see if it makes sense in the context of portfolio building and an end-to-end solutions model. 

 

Ultimately, we have to decide whether DELL is buying platforms or burning cash.  This is a hugely important question and is central to the DELL thesis.  I believe that platforms are being built.  Others believe that cash is being burned.  Time will out the truth.

 

Transformation vs. Turnaround and Adaptation in the Tech Biz

 

DELL is undergoing a transformation, not a turnaround.  Transformation is everywhere in the tech world.  It’s not just DELL.  It’s INTC.  It’s CSCO.  It’s MSFT.  It’s CMCSK.  It’s FTR.  It’s T and VZ.  It’s AMZN.  It’s any number of companies that must pay attention to rapidly changing technologies and redeploy capital generated into R&D and new business lines so that they don't evaporate.  Only the paranoid survive. 

 

But transformation isn’t just relegated to the tech world.  Even so-called stalwarts transform themselves.  I pointed out the other day that KO once used to sell sugared soda water but now it has a portfolio of hydration products that it sells across the world.  The KO portfolio was not just created organically – M&A was involved.

 

Tech is more precarious though for sure.  I think that DELL is well positioned to be on top of changing technologies and changing business needs, and the actions that they are taking seem to bear some evidence that they are seeing further into the future than most and trying to capitalize on that foresight.

 

Again, I urge people to take a look at how DELL has built its storage platform.  Take a look at Equallogic, Compellent, Ocarina, Exanet, and RNA Networks.  Take a look at current parnerships, such as the one with Fusion i-o (a company in which Dell was an early investor).  Take a look at the venture capital arm that is focusing on storage startups.   

 

Ask yourself whether there really is a long runway for growth in the storage business in light of the data explosion, and whether the rise of public cloud providers portends the doom for players like DELL.  I don’t believe the rise of AMZN, GOOG, and others means that DELL’s storage business will die.  Instead, I see them continue to increase their absolute sales in a pie that is growing at a huge rate.  Saying well DELL is going to bump into GOOG or AMZN or FB is “like swimming around in Lake Michigan and asking did you bump into each other.” 

 

If you think Dell doesn't care about IP or R&D after looking at who they have acquired acquiring, well, I'm not sure what to say to you.  Most of the innovative tech companies today (GOOG, MSFT, AAPL, IBM) have acquired rather than built some of their most important IP, and DELL is no exception.

 

Avoiding Getting Crushed: Focus on SMB/Mid-Market and Important Verticals

 

It has been suggested that DELL will be crushed by the likes of the IBMs, HPs, Oracles, and Ciscos of the world. 

 

But one of the ways that DELL is mitigating this risk is by focusing on underserved markets: SMB and the Mid-market.  And not just in the developed world.  They’re laying the groundwork to be relevant to SMB and the mid-market across the world.  One of my favorite graphs is one that Intel put out showing how the PC penetration rate is directly correlated with shrinking months of income to buy a PC.  Well, if you’re optimistic about how income will grow over the long run in some of the markets that DELL is in, then you should like how they are preparing for that future.

 

I also like how they focus on certain verticals that I believe have lots of growth ahead of them and that are in need of the end-to-end solutions that Dell provides.  Dell does a great job in the healthcare vertical and they’re focusing in on the energy sector as well.

 

Optimizing Legacy Businesses and Redeploying the Cash Generated

 

DELL’s legacy business (Legacy Business == End User Computing) is being optimized for cash flow, while remaining a part of the end-to-end solutions portfolio.  (Incidentally, End User Computing has shrunk as percentage of revenue from FY’08 to FY’13.) 

 

Some of have suggested that DELL should have sold off the PC business.  Michael Dell disagrees.  In fact, Michael Dell famously criticized HP for Apotheker’s decision to spin off the Personal Systems Group, noting that the client business provides enormous scale and buying power, which would go away and make HP’s cloud hardware portfolio much higher cost.  After all, according to Dell, a huge percentage of disk drives, processors, and memory go into PCs, not cloud hardware.  Cisco apparently agreed with Dell and in an internal memo criticized HP’s decision, arguing that divesting the PSG group would create a number of problems that would affect HP’s own end-to-end solutions strategy, including weakening the relationship between HP and small and medium businesses, and public sector and education customers.  The Cisco memo even showed how IBM’s cloud hardware business deteriorated in operating metrics when it spun off its PC unit.

 

So instead, Dell is cheerfully optimizing its end user computing portfolio and using free cash generated to focus on buying and building services and software capabilities, so that it can truly be an end-to-end solutions provider.  And by keeping the distribution network from shrinking (e.g., by selling off the end user computing biz), Dell preserves the ability to get operating leverage to work for it in a future with a much higher revenue mix dedicated to services and software. 

 

I think that’s the right call.  Again, time will tell.

 

---------

 

There have been many good rejoinders to some of the other comments made within other threads.  Thoughts on BYOD, the future of hardware versus software/services, public versus private clouds, and more issues are spread across various threads on the board.  It’s worthwhile looking into these and paying attention to the many good comments that have come across the wire.

 

All the best to those who are long DELL.  I'm going to try to avoid getting into more p$!#ing contests with folks who disagree with me, so I will lay low on providing opinions and will instead just post news and updates if I see anything good.

 

txlaw, I have followed your posts on Dell and you have elaborated on the thesis as best as you can. thanks for sharing.

 

cheers,

Qleap

 

+1

 

 

[roundball100]

Has there been any discussion about whether, or at what price, Michael Dell might try to gather resources to help him take the company private?  If he believes DELL to be undervalued half as much as some of those on this thread, this idea must have been considered.  (Whether they would be right or not about undervaluation is a separate point.)  The reason for my question: would the possibility of being taken private put a floor price on the shares, as an additional margin of safety? 

 

Apologies if this has already been discussed.

[mcliu]

I think a key part of the due diligence for Dell is the management's abilities to allocate capital.

 

txlaw made it clear in his post that, it's important to see the IRRs or atleast the results of the acquisitions.

Unfortunately Dell's Investor Day disclosure "Cash for M&A since 2008 of $10.3 billion and  Revenue of Acquisitions of $9.3 billion" offer little insight or value. There also has been little info on a per acquisition basis.

 

So my question is, 1) if no one is certain of the company's abilities to allocate capital (since there are no accurate figures) and 2) this particular item is such an important part of the thesis. How can we form the conclusion that current and future acquisitions will do well and buy the shares?

 

[ERICOPOLY]

 

Nobody is going to do the work for you.  It would be too cumbersome to break everything down, especially if your audience is just going to say, it's in the too hard pile and I haven't read the 10-K.

 

I'm asking questions that others that HAVE read the financials completely sure are having as well. I only read 2 10-Q's a year ago or so, obviously I'm not up to date. I don't see why I can't ask questions that will benefit everyone reading this topic when answered.

 

Anyway, I'll stop bothering you. ValueInv seems to have some of the same remarks and I'll leave it to him as he is far more knowledgeable about the subject. His last post was very insightful imo and he gives some clear figures that put things into perspective, no promo-talk. I'll follow this thread closely, I appreciate the discussion.

 

I don't think you can have a meaningful discussion on Dell without the numbers. After all, this is a value investment board.

 

One more important point- Dell is not a turn around story. A turnaround looks to fix an existing business. Dell is not turning around its existing pc business. Instead, they're trying to build new services / software business. When you buy Dell based on the growth story, you are acting like a VC .

You're betting on Dell making right acquisitions, integrating them and competing successfully in new businesses in nascent markets.

 

That thesis is not a value investment.

 

I think if you invested in Compellent at the ground level, you might be a VC.  But to purchase Compellent and immediately push it into your channel, you are acting more like a reseller (only you now happen to own the product).

 

They had experience selling an EMC storage product, and now they sell a Compellent product instead.

 

The difference in ownership is that you have more control over the engineers.  This should help you make customized solutions.  In theory anyway.

Compellent is a swap in product for their existing sale channels, but how many of their acquisitions are swap in or replacements?

 

Slide 17 shows the overall picture:

 

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

[txlaw]

Swainson on Quest:

 

http://en.community.dell.com/dell-blogs/dell-shares/b/dell-shares/archive/2012/10/02/conversation-with-john-swainson-president-of-dell-s-software-group.aspx

 

http://content.dell.com/us/en/corp/d/bios/john-swainson-bio

[alwaysinvert]

So, 5% of the portfolio now and working like mad to release more funds. Let's hope it can go even lower, eh.

[txlaw]

Posted by jeffmori7:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/dell-and-hp-arent-value-names-just-cheap/article4587639/

 

Needless to say, I disagree that DELL is a "flier," and I don't think this fellow has done the research to make many of the claims he asserts, such as DELL having made "expensive and only partially effective forays into consulting services and 'enterprise' servers designed for corporate use."

 

I also think he isn't properly assessing the MOS in DELL at current prices.  I would much rather own a DELL at sub-$10 versus a MSFT or AAPL at their current prices.  But don't ask me to do the analysis for you.

 

[Parsad]

Posted by jeffmori7:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/dell-and-hp-arent-value-names-just-cheap/article4587639/

 

Needless to say, I disagree that DELL is a "flier," and I don't think this fellow has done the research to make many of the claims he asserts, such as DELL having made "expensive and only partially effective forays into consulting services and 'enterprise' servers designed for corporate use."

 

I also think he isn't properly assessing the MOS in DELL at current prices.  I would much rather own a DELL at sub-$10 versus a MSFT or AAPL at their current prices.  But don't ask me to do the analysis for you.

 

Txlaw, don't worry about what other people say.  Stick to your own analysis and guns.  Milstead has been as wrong about stuff as he's been right...so 50/50...if that!  Cheers!

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/david-milstead-picks-that-left-me-embarrassed-or-elated/article535957/

[VAL9000]

Hi,

 

I'm going to wade into this now (this being this idea and this discussion).  Special thanks to txlaw for his work on this opportunity.  Normally, I like to give a nice long story about why I'm buying something.  But in this case, the thinking is really simple:

 

Dell's services business alone is worth somewhere between $16bn - $22bn.  Dell is trading for $16.5bn.  So I'm getting a great services business ($16bn backlog is outstanding btw) for a fair price, and I'm also getting a bunch of hardware/software products for free, or for maybe $500mm conservatively speaking...  which I would earn back in a few weeks of owning that business.

 

You can cut Dell several ways to make a case, but this way is easiest for me because I am pretty familiar with IT services businesses.

 

 

[VAL9000]

* I should mention that on the back of my research, I bought a bunch.

[Yours Truly]

Just ran some quick numbers and the cash per share is pretty ridiculous?

 

Cash per shares o/s = 11,891/1,734.6 = $6.86

 

P/E (ttm) = $9.47/$1.68 = 5.64

 

P/B = $9.47/5.62 = 1.68

 

P/S = $9.47/34.76 = 0.27

[Palantir]

VAL - where do you feel Dell would stand in the future with transition to cloud computing? Aka, is Dell planning to be a vendor in a SaaS, PaaS, or IaaS etc.? Where do you feel their strengths lie?

[roundball100]

Just ran some quick numbers and the cash per share is pretty ridiculous?

 

Cash per shares o/s = 11,891/1,734.6 = $6.86

 

P/E (ttm) = $9.47/$1.68 = 5.64

 

P/B = $9.47/5.62 = 1.68

 

P/S = $9.47/34.76 = 0.27

 

If looking at cash per share, you should subtract out debt.  (Not clear if you did.)

[T-bone1]

Cash needs to be net of debt, and the cash itself is almost all oversees, which means there needs to be some discount put on it. 

 

If it was repatriated today it would be taxed at 35%, if there is a tax holiday after the election it will be repatriated at 10%.  In the meantime, Dell finds ways to use it without paying tax, like for a large portion of the Quest acquistion.  I discount the cash at 15%

 

They also keep the financing securitizations that they initiate through DFS, which they bought back, on their books.  I think this is basically cash that they could sell for (I assume) a 15% discount, so I include this but discount it.

 

The negative cash conversion cycle is becoming less negative as they transition from a PC maker to a service co.  I consider the negative working capital to be a liability, but I discount it at 50%.

 

Net of debt and as adjusted, I think the excess "cash" on the balance sheet is worth $3.37 per share.

 

I think just taking cash + marketable securities minus debt gives you $3.34, which is awfully close but nowhere near as accurate in terms of what they could actually use.

[smathew]

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 ?

[rranjan]

 

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

 

An estimate of FCF generated by service business ?

[rranjan]

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 guess they can use the cash to acquire overseas without bringing it back.

[ShahKhezri]

Yes.  Like MSFT for Skype, HPQ for Autonomy.