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Technology Stocks : Dell Technologies Inc.
DELL 117.16-1.7%3:59 PM EST
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To: George Wave who wrote (136684)7/15/1999 2:21:00 PM
From: Chuzzlewit  Read Replies (1) of 176388
 
George, thanks for your comments. I do think that your 40% assumption is too optimistic. Let me expand my comments on the limits to growth and the constraints of the size of the existing market that Dell does not control to demonstrate why I think you are overly optimistic.

Let me make two assumptions (you may adjust these as you see fit):

1. Dell's current market share is about 12% of the total market; and
2. The total market is growing at 16% per annum (approximately in line with Intel's growth).

Now, that let's make two additional assumptions to test your 40% growth hypothesis:

3. Dell will grow at 2.5 times the rate of overall market growth until it reaches a stable market share (i.e. 40%); and

4. Dell's stable market share is 30%.

The question is how long can Dell maintain its current growth rate of 40%.

We now have the following expressions:

if n is the number of years Dell will have 40% per annum growth, then
(1.16)^n will be the total size of the market after n years;

Dell's total market will be .3*(1.16)^n after n years.

Dell's market will be .12*(1.4)^n

Therefore, ln(.3) + n ln(1.16) = ln(.12) + n ln(1.4)

so,

n (ln(1.16) - ln(1.4)) = ln (.12) - ln (.3)

Solving for n you get 4.87 years.

That means that at 40% per annum growth for Dell it could be sustained for a maximum of only about 5 years. Clearly, a 40% growth rate is quite optimistic for the next five years.

TTFN,
CTC
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