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Author: Plato90s Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 202185  
Subject: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 1:33 PM
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In a recent series of post by jonkai, it was pointed out that Dell doesn't have shareholder equity or book value reflecting its position as the #1 computer maker in the world. By comparison, Apple has built up a lot of equity, with intrinsic value comparable to Dell ($4.1B vs. $4.9B).

That's a deceptive view, however, because it doesn't take into account 2 factors. One is the degree of shareholder dilution, and the other is the enterprise value of the company.

(note: all quarter and year references are fiscal, not calendar, and unique to each company. all share counts are for fully diluted)

Apple increased its book value on the order of $3B from the nadir of 1998 by pursuing massive shareholder dilution. Outstanding shares increased by nearly 40% from 1998 to 2000, the height of Apple's book value. Apple built its equity at the cost of selling large chunks of itself to employees and companies like Microsoft.

By comparison, Dell has actually held its outstanding share count steady in the 2.6B - 2.8B shares level for the last 5 years. At the same time, its book value has increased from $1.4B in Q1 of 1999 to $4.9B at the end of 2003. If Dell had pursued the same strategy as Apple, ignoring shareholder dilution, then its book value would be far greater today.

As it is, Dell has accomplished a superior balance, IMO, by increasing book value by 250% in 5 years while holding dilution steady. Apple got the same 250% increase, but did it with a 40% dilution of shareholders.

The other half of the equation is the enterprise value of the company. Over the last 8 full quarters, Apple generated operational income of $60M. At the same time, its interest/investment income is $219M. This proves out the point that Apple is primarily profitable through cash, and that its enterprise value is extremely low. Generating $60M of profit from $11.6B in revenue is rightly considered to be underperforming.

By comparison, Dell generates billions in operating income every year. jonkai has correctly pointed out that Dell spends almost all of that income to purchase its own share, which is the only reason dilution on a massive scale has not hit Dell.

The big difference to focus on is the ability of management to change the situation.

Dell has the ability to abandon dilution control at any point and focus its operating profit to building book value. It can double its shareholder equity in about 9 quarters, at current cash flow levels. An all-cash warchest of impressive size is always at the fingertip of Dell's management.

Apple doesn't have the ability to instantly increase its operating profit to a level comparable with Dell. The book value Apple has is about as high as Apple will have, unless it was willing to dump even more shares. Apple can't realistically double its book value the way Dell can, because it has such a low enterprise value.

To paraphrase Sun Tzu

"The wise general depends not on the weakness of his enemies, but on his own strength."

Dell has control of its own fate, to go in any direction they want. Apple is locked into the existing course because of its own weakness.
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Author: dsheehy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85212 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 1:39 PM
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Dell has control of its own fate, to go in any direction they want.

No.

They are tied to Microsoft.

Apple has its own OS, and it's own strategy. Dell can't move without Microsoft and Intel.

Can you explain how Dell can go in the direction of making quality computers and hardware? They just are not capable of it.

David

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Author: jonkai Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85222 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 3:53 PM
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Apple built its equity at the cost of selling large chunks of itself to employees and companies like Microsoft.

By comparison, Dell has actually held its outstanding share count steady in the 2.6B - 2.8B shares level for the last 5 years.


there seems to be some sort of misunderstanding here.... are you sure you got the company names correct here?

Dell is nearly the worst dilution offender there ever was..... where Apple although trying to copy MSFT and Dell, was not successful in diluting its shares, because it granted its options at the highs, so nearly all of them are completely worthless....

where Dell and MSFT have been granting for years, so still have huge amounts of dilution, even after their stocks decline.... in this case, Apple Copied MSFT, not the other way around.....

Dell in one quarter actually spent more money than they made buying back this dilution..... MSFT has been spending about Half of its cash flow buying back its dilution.... Apple has not had to do that, because it's options have not been hitting the share count.... that is the least of it's problems.....

and MSFT's $150 million? heck Apple was spending that much just in normal operating expenses every 10 days back then in 1997...... so i wouldn't call this a hefty investment in apple.... Apple's Billions came from selling computers..... it didn't get $4 billion from selling its shares....

MSFT on the other hand Sold 1.2 BILLION shares to the market in the last six years.... worth $30 billion, that is REAL dilution..... kind of puts MSFt's $48 billion in perspective doesn't it.... AND THAT'S ONTOP of the BILLIONS they spent buying back shares so it wouldn't get even WORSE.....

Dell has such a problem that they actually spent more money buying back shares to keep their dilution steady, than they ACTUALLY MADE in one quarter.... and enough cash has been spent that their equity actually went down in the last few years from a few factors, but some from spending money buying back this DEBT.....

that is how bad it's problem has gotten.....

Apple's dilutive Sharecount in june 1998 was 343.572 million shares (split adjusted)
Apple's dilutive Sharecount in Dec 2002 was 359.057 million shares....

(interestingly, this is also the basic share count, because ALL of the diltutive shares were judges worthless at the time for the dilutive sharecount calculation)

that is about a 4.5% dilution for four years..... MSFT had about 12% in 6 years.... (even after half their cash flow going to buying back shares)....

Dell is similar.... (but they've spent more keeping that dilution to a much smaller percent) but lost shareholder equity doing it......

so i'd suggest you relook up what is going on.... but there are some serious errors in your judgment of what is going on.....

so again Dell's shareholder equity came down in the last two years, where Apple's went up... (slightly)..... Dell's Equity is seriously effected because of Dilution... Apple's equity has not been going up, because sales have been slow..... Dell is selling the low end cheapo's well, but their margins are zero (after including the very real cost of this employee pay that doesn't show up on the income statment)....

Apple is lock into making a whole bunch of money, if it innovates, and nothing much if it does not...... Apple shareholders may not make very much though if Apple is successful in Copying Dell's and MSFT's disrespect for their shareholders.....

and yes Apple tried mighty hard to copy MSFT and Dell's accounting trickery.... but it failed, because the shareprice came down, just when they started copying them.....

jon.

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Author: Commodore64 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85231 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 5:41 PM
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"Can you explain how Dell can go in the direction of making quality computers and hardware? They just are not capable of it."

Yeah, Dell sucks. They can't seem to get anything right. Products suck, marketing sucks, management sucks.

Apple, on the other hand is masterful- they succeed at everything! They have the best products (although, apparently, only 2% of the people know this, lol), best strategy (Efficient, wonderful Apple went from 15% US market share to 2%, while inept, crude, inelegant, evil Dell went from 2.5% to 32% US market share), and best management (just ask him).

Thats why I wish I had bought Apple in 1992 instead of Dell- surely, I would have been better off not owning a bumbling company like Dell? lol

jb


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Author: jonkai Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85236 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 6:55 PM
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(Efficient, wonderful Apple went from 15% US market share to 2%, while inept,
crude, inelegant, evil Dell went from 2.5% to 32% US market share), and best
management (just ask him).


great, now tell all of us, how a company with 2% market share like Apple, has nearly
the same Shareholder Equity as a company with 32% market share like Dell? and while
Dell has sold more computers in the last two years, than before, they lost Shareholder
equity by so much that their down to where a Computer company with only 2% market
share is......

and a company with 32% market share, can't even perform better than a company with 2% market share? what's up with that?????

http://chart.bigcharts.com/bc3/intchart/frames/chart.asp?symb=dell&compidx=aaaaa%3A0&comp=aapl&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=1564&style=320&time=11&freq=2&nosettings=1&rand=224&mocktick=1

either Dell is the worst Management in the world with shareholder equity.... or.... they
are selling lots of computers for no money..... which would be not to far off from the
worst management in the world.......

so, thanks for telling us Dell was a great investment 10 years ago.... but you are about
10 years too late telling us.....

tell us why in the world Dell is doing so badly with cash, if they have 32% market share?
and how that is going to change and make money in the future? when they can't even
make money now, assuming prices for computers will even get worse (lower) in the
future? (due to a price war Dell started recently, and can't seem to get out of, which
made it perform even worse than Apple during this price war)

jon.

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Author: dsheehy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85240 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/21/2003 7:43 PM
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Yeah, Dell sucks. They can't seem to get anything right. Products suck, marketing sucks, management sucks.


Yes.

Apple, on the other hand is masterful- they succeed at everything! They have the best products (although, apparently, only 2% of the people know this, lol), best strategy (Efficient, wonderful Apple went from 15% US market share to 2%, while inept, crude, inelegant, evil Dell went from 2.5% to 32% US market share), and best management (just ask him).


how many times does it take to get this through your thick skull? Marketshare has NOTHING to do with quality, or ethical management.

Just ask Enron.

You now why Dell has high marketshare? Because they are lying scammers who manage to convince people their poo smells like roses.

David

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Author: Commodore64 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85286 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/22/2003 1:55 PM
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"You now why Dell has high marketshare? Because they are lying scammers who manage to convince people their poo smells like roses."


Its called marketing- something Dell is very good at, and something Apple is EXTREMELY* bad at...look it up- its a pretty important concept. While you are at it, tell Steve Jobs what you learned- or better yet, don't- its better for Dell if Apple keeps bumbling along :).

"Marketshare has NOTHING to do with quality"

Sure, a company can make money with a tiny market share (as Apple SOMETIMES does)- its called a niche market.

But the bottom line for any business is making money- the more, the better, and typically, having a large market share is more conducive to making more money over the long term (as long as you are making money on a per unit basis, which Dell does).

Hey, things aren't THAT bad at Apple- at least they aren't Gateway...

jb

* IF their product is as superior as you claim, yet essentially no one is buying it (2% and dropping), they must be doing a horrible job marketing!

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Author: Commodore64 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85287 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/22/2003 2:35 PM
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As you know (or should know) there are a number of things a company can do with its profits.

Apple, basically, does nothing with their profits. They "bank" them (good thing they do, too, because the interest is the only thing making them sometimes profitable).

While Dell ALSO banks some of its profits, Dell also uses its profits to GROW its business (something Apple hasn't done in years) and to buy back its stock -reducing the outstanding shares and thereby increasing the earnings per share (notice that Dell's Treasury stock has increased consistently , whereas Apple has no treasury stock).

Look at the balance sheet- you can see that Dell is ploughing its money into growing its business (increased retained earnings), buying back stock (increased treasury stock), and, to a lesser degree less into the "bank" (which would show up as shareholder equity).

What you have here is the classic example of a growing, vibrant company vs. a company just treading water and hoping not to go under (Apple).

I hope this helps.

jb




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Author: Commodore64 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 85288 of 202185
Subject: Re: Shareholder equity and cash. Dell vs. Apple Date: 4/22/2003 2:43 PM
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Plato, apparently someone loves you (or your post at least)- you made post of the day! :)

jb

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