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No. of Recommendations: 48
To buy or not to buy Dell is not the (only!) question. Are we in the post-PC era? Is this the era of handheld devices, set top boxes or(Gasp) wireless phones? Is internet access the end all be all? Maybe! The question for me is will Dell Computer be able to maintain its present valuation in the immediate future( 3-5 years). Because of this concern I have tried to gather data to evaluate Dell as a company in some context. I hope that this will provide a basis for the group to evaluate the prospects of this company for the semi- hemi- demi-near future.

Dell computer is ranked number 210 in the Fortune Global 500 . Sales are about 2 billion a month and these revenues have had a five-year compound growth rate of more than 44%. In 1999 the year over year increase of PC sales was >20% ( over 27% in third quarter) Ah yes- BUT the major increases were in low end sales! Oops! Lets agree that Dell sells computers as a commodity and must be aggresive in pricing. If nearly 70% of its systems are sold to large businesses and various government entities they had better price aggressively? Eastman Chemicals is supposed to have replaced more than 10,000 computers in one fell swoop so to speak. So what if the story is apocryphal. The current suite of PCs( 59% of revenue), portables and laptops(24%)and servers and storage products(17%) are certainly not all "low end" (These numbers vary from source to source). And please dont forget third-party software and peripheral sales.

M.Dell has stated that the company must focus on at least four areas. The consumer and small business market, the international market, the production and sale of servers and storage devices, and the development of enterprise systems.

How are they doing? There are over 440 million PCs extant and DELL., CPQ, IBM, and HWP made more that 40% of them. Dell computer has made about 10% of all PCs and is now number one in sales worldwide. There are more than four million small businesses on the Internet and the number is increasing at >20%/yr. The number of Web pages doubles and e-comerce grows at about 130% a year. Most of these people need REAL computers not Internet appendages. So a key market segment for Dell will continue to be small businesses and home offices.

Because Dell wants to further reduce dependance on the corporate upgrade cycle they have also begun direct-sales in the sub-$1000 dollar market ("consumers"). In 1999 sale of PCs that retail for around $600 jumped from an 0.8% to 47% of all industry sales. I guess these computers really are a commodity (some are free-the ultimate price). Will Dell be able to compete and maintain margins? You jest! They can and do make these boxes and sell at a profit!. More important than the margin here are the margins in the fastest growing sector of Dell's business - the high end market products: work stations, servers, and storage devices. The new Internet ready Webpc might be the first Dell surfer shot (It really isn't anything special- but marketing matters). Dell estimates that less than 15% of sales will be to consumers that might buy a Webpc. Lets see- 15% of 26 billion!! Plenty of money here. Dell is second only to APPL in brand loyalty and there is no reason to suspect that they will not be able to capture and retain a good share of the the small business (and home office) market. Can the internet market be so had to crack that the best e-commerce company in the world cant prosper? I dont think so! But watch carefully- the size of this market sector may be like the Chinese market, more hype than substance.
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Another set of Dell's targets are the recovering markets in Asia and Eastern Europe and the strong European upgrade cycle to 32-bit computing (Windows) . About 68% of Dell sales are in the USA , 26% in Europe and 6% in Asia. Again plenty of room to compete. The manufactoring facilities are well placed for expansion. They are in Ireland, Malaysia and Texas. Here we must consider China and the expansion of the internet. (They cant fight the Internet wave from party headquarters maybe not even house to house. They wont win) So can Dell penetrate the server market in China? (This may be where the big money is). In a survey of server users in the U.S. Dell was best in hardware pricing and in ease of upgrade. They were a close second to IBM in reliabilty(87.55) and fourth in scalability. This is why Dells server and work station sales are increasing rapidly in the U.S. They are second to CPQ. (These Unix-based server operating systems have the highest margins). It is interesting that Dell will factory install the dreaded Red Hat Linux on all "future and currently shipping Dell PowerEdge server models". Fear not- they are also working very hard with Microsoft and the Windows NT software (Is this a sort of fall back position?). You can anticipate quite a battle and the prospects of good profits.

Still another Dell goal is to provide equipment for and and service to businesses small and large as they adopt e-comerce. Dell is the most sucessfull e-merchant in the world. Period! There are more than four million small businesses on the Internet and the number is increasing at >20%/yr. The number of Web pages doubles and e-comerce grows at about 130% a year. Dell can certainly build websites (check it OUT) and the PowerEdge network server and PowerVault storage device can do the job for almost anyone (dont you love these names?). We are talking gross margins of over 30% to less than 20% for PCs.

What are the prospects for Dell? They are the number one in PC sales, have a great product line, are expanding into Asia and Europe, and are helping to build the very structure of the internet. Their results are "facts"on the ground. Looking good. The fantastic quality of their internet software, their inventory control, and value chain integration are the envy of manufacturing companies worldwide. The market valuation of Dell may or may not fully factor in the quality of the company or Dells capacity to evolve based upon their Internet sales model. I dont know. But if one were to compare Dell to Compaq one would conclude that the market has not fully valued Dell. I think we have another case of Wise myopia. Dell Computer is not just a manufacturing novelty. Whats good for the Cisco gander is also good for the Dell goose! Dells market cap may well expand, The future is bright! I wish I could get paid for saying buy DELL! I cant so the trusty-Go Dell will suffice!

My submission is not as quantitative as I wanted. i have only myself to blame. In the future I would like to discuss the advantages of Dell's business model on the Internet and the weapon that the best profit margin in the industry can provide.
Binturong




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