Jim, a few points...
* Niles was a lot more right than wrong (this time)..since the beginning of the quarter, he has said that he thought Dell would miss...the only analyst to come out strongly and say so...who cares if he was high on the EPS/revenue number????...he was right, you were wrong (on that one)..it took me until the IDC/Dataquest numbers to realise Niles was correct...(although no one, no one thought the miss would be so bad)...Niles IS the axe on Dell, because people believe him...it is that simple..until he makes a couple bad calls...his influence is not going to wane...
In fairness, you frequently got the direction of Compaq's misses right (the past two years)..but not the exact number...You should get credit for that (and you took it too! I don't remember you admitting you were wrong when you didn't get Compaq's misses exactly right!)
* I've been harping for (at least a week) that Dell needed to come out and "get this quarter out of the way"..they let the pressure build to unacceptable levels, and one certainly should question why they didnt warn earlier.....they didnt know earlier that they were going to miss by SIX CENTS????...surely they knew they were going to miss (?)...Shouldn't management get that information out as soon as possible???....Now, the alternative view is: They didn't know until the last 24 hours (that they were going to miss so badly)...if true (and I think not)..then they really don't know what's going on with the biz...that seems unlikely to me....and the vaulted Dell supply chain/information flow management is not near as good as we all believe...IMO, that is even a worse scenario (than Dell delaying the warning)...
* Also, I have stated (in the past week(s) that Dell needed to do a better job playing the Wall Street expectations game....and, also, give SPECIFIC (conservative) numeric targets...look at this quote from Meredith, "We are trying to set more reasonable goals, more realistic goals, and ones that we think you are more comfortable that we are going to meet"...and MD, "Clearly we're trying to calibrate expectations and get more leeway to manage thru these turbulent times"...I think they are (starting) to get the message..We should have seen these quotes months ago...
* On a (somewhat) positive note: This year's fiscal benchmark's/guidance (as given by TM) are as follows: Low 30's % revenue growth, and net margin's between 7-7.5....Last week, I posted a message to Geoff Nunn figuring that Dell would produce 35% yoy revenue growth, and 7.8% net margins in the next year....Essentially, that is what I think Dell is ALSO saying, given they admitted that their NEW targets are conservative enough to allow for (such circumstances like this year)...Sure, there is a possibility that this year's "Unusual" circumstances could become more usual...but, just as likely (or more)...Dell could return to (at least) a couple quarters of super-execution during the next year.....which would likely get the average net margin (for the year) closer to 7.8% than 7.5% or below...given we are going into a major upgrade cycle..
Adjusting for this quarter's sub-standard numbers, with revenue growth of 35% and 7.8% net margins going forward, I see EPS for the next fiscal year as: Q1 (.22) + Q2 (.24) + Q3 (.26) + Q4 (.27), or .99 cents for the year...
This year's: 69 cents, next year's: 99 cents...that would represent YOY EPS growth of 43.4%...
Now, if one believes Dell management is truthful and competent (and Dell's management made that possibility a little bit harder with this latest episode), and that component prices supply problems/Y2K are one-time problems, then it appears that Dell is undervalued at these levels...and would be a screaming buy if it hit low 30's....
36/.99= 36 PEG (matching/a bit below earnings growth
36/69= 52 PE
A year from now....??? If Dell maintains the 52 PE, assuming the same or better interest rate environment.....then we could see 52 for Dell stock price, or 44% stock appreciation from 36...
However, it will be hard to fault the market if they take a wait-and-see attitude towards Dell, at least thru the 1st quarter...As I also stated last week, Dell should have downplayed expectations for this quarter long ago....They easily had the Y2K card to play...they gambled and lost....and anyone holding Dell's stock also lost...However, the Street has a short memory, and I expect Niles and crew will come out strong for Dell IF 1st quarter execution is flawless, and Microsoft 2000 demand comes in strong as expected, and the stock is still in the mid/high 30's by April... |
