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To: Night Writer who wrote (95177)	2/11/2002 9:36:10 AM
From: Elwood P. Dowd	Read Replies (2) of 97611

Merrill on DELL. highlites by: skeptically 02/11/02 09:29 am Msg: 272921 of 272923 FlashNote United States PC Hardware 8 February 2002 Steven M. Fortuna First Vice President Michael Hillmeyer Vice President Dell Computer Corp Continue to Expect Sequentially Down April Quarter STRONG BUY Long Term STRONG BUY Reason for Report: Company Update DELL; $25.88; C-1-1-9 Volatility Risk: Above Average Reported EPS (Jan): 2001A $0.84; 2002E $0.65; 2003E $0.75 • Dell is scheduled to report its January quarter (4Q02) earnings on Feb 14. Our January quarter forecast calls for revenue of $8.0 billion and EPS of $0.17, inline with Dell’s recent positive pre-announcement. • Our view is that Dell’s Q4 was strong due to a solid consumer and some 9/11 one-time benefits. We are not expecting this strength to carry over into 1Q02 or 1H02. We are also reiterating our view that we think there is risk in the PC sector in the first quarter of 2002 as well as for the entire first half. • Our thoughts on Dell’s outlook for the April quarter (1Q03) have not changed. We think that when the company provides its outlook for the April quarter, there is a high likelihood it will forecast sequentially down revenue. Indeed, we think April revenue could be down about $300-$400 million from January's $8 billion. We are comfortable with our 1Q03 EPS estimate of $0.16. We would note that Dell has not previously published a forecast for the April quarter. • We are therefore maintaining our somewhat conservative stance with respect to revenue and EPS for Dell in the April quarter. We expect revenue to come in at $7.6 billion (down 5.0% Q/Q and down 5.3% yr/yr) with EPS of $0.16. We believe the Street is expecting revenue closer to $7.8 billion and the current consensus EPS estimate is $0.17. • On a longer-term basis, we continue to believe that the Dell model inherently has double digit operating margin potential driven both by a richer mix of enterprise products as well as a better economic environment. • We are maintaining our strong Buy rating on Dell shares. Our 12-month price objective of $35 is 47x our FY2003 EPS forecast of $0.75.

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