Love to pound on Compaq. Nothing like making it appear that Compaq is doing virtually nothing but losing market
share to Dell in the boxmaker. The next few articles illustrate that perfectly and explains why Compaq fell almost
8.8% and Dell only 6% on Dell's mediocre report. Feel free to vomit as needed.
--
2/16/01 8:48 AM
Source:Bloomberg News
****THE FOLLOWING IS AN UNOFFICIAL TRANSCRIPT.**** BLOOMBERG L.P. DOES NOT
GUARANTEE THE ACCURACY OF THIS TRANSCRIPT.
Austin, Texas, Feb. 15 (Bloomberg) -- The following is a transcript of a Bloomberg interview with
Michael Dell, chief executive of Dell Computer Corp. The reporters are Kathleen Campion and Roger
Stern.
CAMPION: Well, as we've been telling you, Dell Computer is the big
after the bell earnings story. The world's biggest direct seller of
personal computers said operating profits rose to 18 cents a share
that was a penny shy of Wall Street's estimates. On the revenue
front, the computer retailer raked in $8.7 billion, slightly ahead of
expectations.
ROGER STERN, BLOOMBERG NEWS: Now, earlier today, Dell said
it will fire 1,700 employees, or four percent of its workforce, to cut
costs and boost profitability. Last year was a rough one for Dell, the
company cutting its sales goal three times, and it missed forecasts
once. Dell shares plummeted 66 percent in 2000, the stock's worst
performance since the company went public in 1988.
CAMPION: And joining us now to run down the latest earnings
numbers and give us some guidance, we hope, for the future, is
Michael Dell. He's the founder and chairman and CEO of Dell
Computer.
And, Michael, thanks very much for talking with us. Can you give us any more guidance? We looked
through the statement released by the company, and there wasn't a whole lot to tell us there, going
forward. Why is that?
DELL: Well, if you look at the fourth quarter, we grew at units at 43 percent, which was about four
times the rate of the industry, and it was faster in servers, which grew 63 percent, and notebooks and
storage as well. Going forward, the first quarter, we expect that our revenues will be down about eight
percent sequentially, to about $8 billion, and that operating margins will be roughly flat on a
percentage basis, which will deliver roughly 17 cents a share.
STERN: You told us $8 billion. I know the Street was expecting, I think, about $8.5 billion for the first
quarter. The Street was also, in terms of earnings, expecting 19 cents a share. Is that also too
optimistic?
DELL: Well, as I just stated, we have we are going to, on our conference call in 30 minutes or so
here, talk about a flat operating margin in percent, which would translate to about 17 cents a share.
We've seen our industry has seen a very broad pullback in demand. And while we're continuing to
grow faster than our market, you know, this market is not generating a lot of overall demand.
CAMPION: Yes, I'm sure you and all of your competitors would agree on that. One of the strategies
that you've used during this period of time has been to essentially trade margin for market share,
undercutting the pricing of your competitors. Is that a reasonable long-term strategy? Or is that
situational?
DELL: One of the other things that you'd note about our fourth-quarter performance, is that while we
were not achieving the type of profitability that Dell has in its past, we actually had the highest profit
among any of our peer group. And we also had the highest growth rate. So we believe that if we can
gain market share while maintaining profitability, that, you know, that's a very good strategy, given
that all of our competitors are either unprofitable, or losing market share, or in some cases, both.
CAMPION: I guess the problem then is if one of your competitors, Compaq, for instance, decides not
to play the game the way you've structured it, that is, if they decide to get into a price war with you,
then the game changes, doesn't it?
DELL: Well, I think if you look at our competitors, what you find this is particularly true in the case of
Compaq is that their profits are localized in the high end of their business, the server business. In the
fourth quarter, our server units increased 63 percent. We far outpaced Compaq's growth in the only
area of their business where they have a profit. If they were to, let's say, try to compete with Dell in
the other part of their business, the client products, they would have to, you know, essentially incur
substantial losses. Our cost structure is far lower than theirs in that sector of the business, and, of
course, we're all the time working to continue to refine it.
STERN: You know, we talk so much about u-shape recoveries and v-shape recoveries, for your
company and for your sector, what kind of a recovery are you seeing? And how quickly will it snap
back?
DELL: We haven't seen a deterioration continue in demand, but you know, it's been fairly flat over the
last several weeks or months. And, quite frankly, I think the visibility going out later on in the year is
not particularly high. That's why we're talking about the first quarter; we're not providing guidance
beyond the first quarter. And, you know, as we have greater visibility, we'll do our best to provide it.
CAMPION: Michael Dell, are you planning any more layoffs? We've heard some pretty scary
estimates, anywhere from 3,000 to 8,000 total. Any truth to that?
DELL: No, the simple answer. We believe with our unfortunate move today that we're done realigning
our cost structure, based on everything that we know.
STERN: For how long will you be operating with that kind of reduced staff? And when do you expect
to get back up to your old staffing levels?
DELL: Well, you know, ours is a company that has been growing revenues at the rate of several
billion dollars per year. And certainly as we grow, there will be areas where we'll need to continue to
add to our staffing levels. Certainly, it's not something we're doing today, but as the business
requires, we will make adjustments to the staffing level. But we don't really provide projections on
that.
CAMPION: You know, we heard some conjecture earlier from a Street analyst that there may be
some question about your being able to maintain the trend in component prices, maintain the prices
of your components, that is, which of course would feed into margins if that was not maintainable.
Can you comment on that?
DELL: You know, there's a relationship between the cost of components and the demand in our
industry, and it's pretty distinctive. If the component costs go up, it usually means that overall
demand in the industry is strong. And, you know, that in itself is a positive indicator for margins and
for the industry. What Dell is able to do because of its minimal inventory, only five days in the fourth
quarter, is take advantage of those declines faster than others.
We don't see a lot of catalysts in the very near term for component costs going up, in fact they
appear to be going down at a rather precipitous rate in many cases. So it's really a question of how
does the demand picture shape up long term and other cost reductions that Dell can drive in its
operations to ensure it remains competitive.
STERN: So much of your sales in the past have been driven by new computer applications, new
programs that force companies to upgrade their old computers to get more powerful processors.
Many people would say there aren't enough killer apps out there to force companies that have a
Pentium II right now to say, ''You know, we've got to replace these all with Pentium 4s.'' When do you
see these kind of killer applications coming back onto the market to drive sales?
DELL: Well, I'd just point out that in the fourth quarter, our unit volumes increased 43 percent. So
clearly, there were a number of people who decided to come to Dell to buy computing products; 43
percent more units were sold in the fourth quarter than in the fourth quarter of the previous year.
What we see in terms of demand callus are a few things. We think that Windows 2000 and future
versions of Windows 2000 are a demand callus and more and more corporations are moving to
Windows 2000. The Pentium 4 acceptance rate was increasing throughout the quarter, and in
workstations was about, you know, close to 50 percent, along with a Windows 2000 attach rate of
close to 50 percent, so we're seeing some strong acceptance there.
We think that wireless is a catalyst to drive people from fixed computers to mobile computers. And,
while there's been a lot of discussion about the failure of dot- coms, a lot of the old economy
companies, the established companies, are still very much involved in using the Internet .
STERN: Michael Dell, I'm afraid the clock is ticking, so we're going to have to end it there. I apologize
for cutting you off, sir.
***END OF TRANSCRIPT***
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