Dell Analysis from IDEAglobal
Jun 12 2000 2:28PM ET More on IDEAglobal...
Dell to Expand Overseas Investment
From IDEAglobal
Special to CNBC.com
Dell Computer Corp. {DELL}, the world?s second-largest personal computer maker, said Monday that it plans to expand investment by its Dell Ventures venture-capital unit to Europe and Israel over the next six months.
To date, the venture-capital program has centered on U.S. venture growth, but Dell is now looking to expand its geographical reach and spur development outside its homeland.
This diversification looks like a positive step, one that will help reduce Dell?s reliance on the U.S. marketplace. Given initiatives such as these, shares of Dell look likely to rally in the next couple of months. And given a strong earnings release during the impending earnings season, Dell may even establish a new 52-week high.
Dell Ventures was established in the United States a year ago and to date has placed more than $1 billion through 90 investment agreements. With more than $7 billion in cash and investments on its balance sheet, Dell will seek investment opportunities in the Germany, Israel, Scandinavia and the United Kingdom. In Europe, Dell is particularly interested in wireless technologies.
In Israel, Dell launched a Web site last year to establish a stronger presence and to help sell products. Dell?s overall Israeli sales in the first quarter this year jumped nearly threefold by comparison with a year earlier. Dell Israel averaged $1 million a month in online revenue in the first quarter, representing about 40 percent of turnover, similar to Dell's rate worldwide.
Dell currently has a 10.5 percent share of the PC market, second only to Compaq Computer Corp. {CPQ}, which has a 13.1 percent share.
Earlier this year, Dell reported strong fiscal first-quarter results, led by higher profit margins. Earnings of 19 cents a share, for the first quarter ended April 28, easily surpassed analyst expectations by 3 cents. The company posted first-quarter revenue of $7.28 billion and net income of $525 million. That is 31.5 percent higher than the $5.54 billion in revenue and 21 percent higher than the $434 million in net income Dell pulled in during the same quarter a year earlier.
Despite memory-chip shortages that plagued Dell earlier this year, management recently indicated that it is comfortable with earnings projections for the fiscal year ending in January 2001. Analysts polled by First Call Corp. expect Dell to earn 92 cents a share for the year, up from 68 cents for the previous year.
Furthermore, seeking to avert disappointments that have accompanied its decelerating growth over the past year, Dell has sought to lower revenue growth expectations to about 30 percent a year from historic rates above 40 percent and even 50 percent. Wall Street analysts have responded by projecting revenue growth of 30 percent for fiscal 2001.
Shares of Dell are down 13 percent year to date but still up a strong 30 percent over the past year. The shares look likely to trade through their 50-day moving average of 48 3/8 and their 200-day moving average of 45 21/32, toward IDEAglobal.com's $54 price target.
Dell's stock looks poised to challenge its 52-week high of 59 11/16 closer to the fall.
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