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Technology Stocks : Dell Technologies Inc.

DELL 133.20

+5.7%

Nov 26 3:59 PM EST

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To: Lee who wrote (145658)	10/24/1999 1:50:00 PM
From: jim kelley	Read Replies (1) of 176387

Lee, Re:But if the ConvergeNet acquisition closes on Nov. 9th or sooner, will that charge be included in the next quarter's income statement or this quarter? Also, even if revenues beat estimates, what will happen if margins get compressed because of this rapid growth in the consumer sector? Generally, a company's stock is not penalized for an acquisition like convergenet. GTW margins did not show compression in the July, August and September quarter. I would expect that any consumer margin pressure on DELL would come from the October memory price hikes. DELL can respond quickly to memory price hikes in the consumer arena. Niles also stated that he thought that this memory situation would dog DELL into the 4th quarter because DELL had won a lot of large corporate accounts based on their bids. Michael Dell addressed this issue directly when he said that their contracts were indexed to spot market memory prices and any changes in the configurations were negotiable contracts items. In the past, companies that bought from CPQ or HWP would frequently find that the prices they were paying for PC's was higher than the street price because of the rapid drop in component prices. DELL's contracts provide that the company's can benefit from a drop in component prices. In this situation, where this a temporary rise in prices of some components the contracts provide for an increase in price. Niles did not mention MD discussion of this issue. I am inclined to believe Meredith when he says the hit is 70-75 million in product costs. It takes about 340 M in incremental revenue to absorb the 70-75 million in additional costs. I estimate that DELL's incremental revenue will be greater than that. Food for thought.... Jim Kelley

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