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You'll find more info on the DELL board, of course.

But here's my argument for DELL:

1) Growth. What can you say? Over 60% annualized trailing growth. Projected 40%+ future growth. Earnings growth has outstripped sales growth - always a good sign.

2) More growth. How can DELL keep growing?

a) DELL still only has 7% market share. Continued
consolodation has led to ever-increasing market share for the big players. There's no reason for that to stop.

b) DELL has barely tapped the consumer market. Only 10% of sales are to consumers and this part of the business has actually shown TRIPLE DIGIT growth in recent earnings reports.

c) DELL has barely tapped the Asian markets. Only 7% of revenues come from Asia currently. DELL is pushing aggressively into the completely untapped Chinese market (they're building a factory in China). Asian sales have show rapid growth even during the recent Asian crisis when PC sales, as a whole, have been down.

d) Servers. A faster growing market and a much higher margin market for DELL than the desktop area.

e) Laptops. See d.

f) Internet Sales. Guess what? DELL's an Internet company too. They've gone from $1 million/day to around $4 million/day on their Internet site in about a year's time. In all honesty, DELL is the most profitable Internet company around.

g) More Internet. We may well see DELL.net sometime soon - an ISP that comes "ready to access" when you boot up your DELL.

3) Performance. DELL has appreciated 140% annually over the last 5 years. That's no typo.

4) Management. Michael Dell. When you invest your money in a company, you'reinvesting your money in people. Michael Dell is 33 years old and a multi-billionaire - all of his own making. This college dropout has made his mistakes (an ill-considered venture into the reseller market, faulty laptops) and persevered through all challenges. Even the most rabid DELL bears would have to admit Michael Dell is among the elite CEOs in the world.

5) Margins. They keep going up. Even recently with declining PC prices, DELL increased their Operating margin.

I'll admit that I can understand the concerns over whether this is a "buy it and check in 10 years later" kinda stock. But is that a _requirement_ to be a Cash King? I think DELL is clearly a Cash King now and for the near-term future. I think DELL, with the great management of Michael Dell, will continue to be one of the world's elite companies, changing product mixes quicker than anyone else and adapting to the shifting technology climate.

I think the same concerns should apply to Intel (what if microprocessors become obsolete?), Microsoft (what if a vastly superior alternative to WinTel catches on?) and Cisco (their technology is hot now but the winds can shift any time) but that doesn't stop them from being Cash Kings. It shouldn't stop DELL either.

-chris
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Here are my arguements against DELL. Several of these have also been raised by others

1) The PC market is a commodity market. While DELL looks very good for the next year or so there is currently no reason to believe that someone else might knock them down a peg in the next five to ten years.

2) A little over 24% of the discressionary funds in the Cash King portfolio is currently invested in the PC market (I am not considering the Foolish Four selections). Why should the portfolio be looking to add to it's holdings in the PC market when there are so many other markets that have as much, if not more, potential for growth and profit? An example of this point is the number of cellular phones sold per year is now higher than the number of PCs.

3) If growth is the primary criteria why not SAP instead? It has a growth rate where 40% is a bad year
and has a market presence large enogh that other businesses use compatabliity with there software as a major selling point. (My personal opinion is that SAP needs to complete it's conversion to US GAAP before being added to the portfolio. Can I nominate it for the $2000 being added in January 1999 now?).

Regards,
Allen
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The PC market is a commodity market. While DELL looks very good for the next year or so there is currently no reason to believe that someone else might knock them down a peg in the next five to ten years.
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The "PC is a commodity" argument has been around from Day 1 and hasn't hurt DELL a bit. Intel sells a commodity as well yet is clearly a Cash King.

You say "there is currently no reason to believe that someone else might knock them down a peg". I agree - this sounds like a recommendation, not a criticism. If there's a typo there and you meant that you expect someone will, in fact, knock them down a peg, well, again, the same argument goes for Intel, Cisco and even MSFT.

If you put DELL in the CK port you are, indeed, betting they're going to continue to gain market share. I think that's a very safe bet but obviously it's not a guarantee - no investment is.


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If growth is the primary criteria why not SAP instead? It has a growth rate where 40% is a bad year
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Well, why not PSFT instead? No reason to go to the bench when you can play your starters. Not that I think either would qualify as a Cash Kinger - too much of a niche business that may not even exist in 5 years.

-chris
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Well, why not PSFT instead? No reason to go to the bench when you can play your starters. Not that I think either would qualify as a Cash Kinger - too much of a niche business that may not even exist in 5 years.

I'm not sure I understand this statement. Whether you're talking about SAP or PSFT, I don't see how enterprise software can be viewed as a niche business that won't be around in 5 years.

Phil
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I'm not sure I understand this statement. Whether you're talking about SAP or PSFT, I don't see how enterprise software can be viewed as a niche business that won't be around in 5 years.

Phil,

I believe the problem here is not that SAP and PSFT are not great companies with top-notch products. The problem is that they are not consumer brands (most individuals don't have a need to print payroll checks, track benefit packages, issue purchase orders, or run a factory floor). People I know either have no idea what either of these companies does, or wants to know how to buy their stock.

Regards,
Allen
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I believe the problem here is not that SAP and PSFT are not great companies with top-notch products.

Allen,

I don't dispute that point at all. OTOH, that doesn't mean that they can't become CK's either. Most consumers don't know what Cisco does either, yet the great majority of us think it has CK qualities.

What I was wondering about was Angry Candy's statement that he saw the business of SAP and PSFT as being a niche business that mightn not be around in 5 years.

Phil
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What I was wondering about was Angry Candy's statement that he saw the business of SAP and PSFT as being a niche business that mightn not be around in 5 years.
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OK, maybe I misspoke a bit when I said that. My concern is that SAP and PSFT have their entire business focused on a very narrow sector ofthe software industry. Who knows if people are going to still "need" companies like SAP and PSF in the future or if their services will windup being replicated by something included as part of Windows 2001 or some other such development?

Likewise, I wouldn't recommend buying stocks like NETA and SYMC for the CK portfolio. There's a difference between buying a diversified software company like MSFT and a software company that operates only in one area. Maybe in the future network security software willjust be an automatic function embedded in what passes for a microprocessor?

A diversified co. like MSFT will adapt to the shifting winds of the tech industry. Companies like SAP, PSFT, BAANF, HBOC, NETA, SYMC (I own PSFT and NETA, for the record), etc. can easily be rendered obsolete or simply "absorbed" in the future.

-chris
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The "PC is a commodity" argument has been around from Day 1 and hasn't hurt DELL a bit. Intel sells a commodity as well yet is clearly a Cash King.

Ah, but the difference here is that Dell is just one among many - Compaq, Gateway, IBM, HP, etc. all sell PCs which are not significantly different from each other. Intel makes the brains behind all of them. It's relatively easy to displace one of the vendors -- Packard Bell found this one out the hard way -- but it's nigh impossible to change the original supplier -- as AMD and Cyrix have discovered.

Now I'm not saying that Dell is a Packard Bell. Dell computers are pretty decent systems, while PB stunk. I think Dell is a reasonably safe investment, but I'm not sure how much CK wants to tie the portfolio to one particular industry.

Zathrus
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> What I was wondering about was Angry Candy's >statement that he saw the business of SAP and
>PSFT as being a niche business that mightn not
>be around in 5 years.

Here is the short answer, No SAP is not a niche
business and SAP is going to be around a long long time.

Here is why.

Just as CAD/CAM is a niche market or databases, a niche market, so is SAP's business software. SAP dominates their niche, their biggest competitor is BAAN whose market share is 1/4 that of SAP. And they have not yet even begun to saturate the market. Until just lately they have only sold into the Fortune 500 companies. They are now moving into middle tier companies, and they have had 40% market growth in Asia-Pacific even with its bad economy.

The SAP product line runs the business from Soup-to-nuts. Most of the businesses considered for the Cash King are SAP customers. The end-users love the products because of ease of use and reliability.

SAP does not just sell software products, however,
service and support are key elements that are bundled with their products. This is done for several reasons. One, a given business implementation can be very complex. It requires expertise to define the right configuration for a companies needs, and to transition existing systems to the new one with minimal disruption to the business. Two, reliability is key. No big company can afford to have down time in their business software. Three, the IS staff needs training. SAP develops a strong relationship (loyalty) with their customers because of this top notch support.

It is possible that in 10 or 15 years SAP will have saturated their market but it is not likely. And even if they did, their customer base would be so big they would be around many years after that supporting the existing customer base.


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The end-users love the products because of ease of use and reliability.

That's the first time I ever heard anyone say that about SAP. My company uses it. I've heard it's inflexible/difficult to modify. I read of a number of stories of companies abandoning SAP due to the cost. Seems estimates are always way off.

Also, I thought that PSFT was SAP's biggest competitor (though it is certainly much smaller in size).

Phil
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I read the same story about SAP software; very difficult and expensive to implement; apparently a good percentage of companies give up; but the ones that are successful, really do benefit from it. Came in an article on Fortune I believe few months ago.

I wanted to buy a ERP Stock; because of the above, I was wandering wether to go for Peoplesoft; their software is easier to use, cheaper valuation, smaller company and more room to grow (meaning higher chance of being a 2 bagger) ?

What do you think ?
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