Hi John,
Remember when.............
chron.com
May 21, 2006, 12:03AM
An investor remembers the good old days at Dell
By LOREN STEFFY
Copyright 2006 Houston Chronicle
Kemble Matter has sold every share of his Dell stock. And he's not buying any more.
That's how bad things have gotten for the Round Rock-based computer maker.
Matter (pronounced MAH-ter) is a high school wrestling coach in New Paltz, N.Y., who made a small fortune on Dell beginning almost a decade ago. He may have been among the company's biggest cheerleaders, talking up the stock on Internet message boards and encouraging friends and family members to buy it. He celebrated Dell's quarterly earnings reports with backyard barbecue parties.
"All I did was buy Dell," Matter says. "I used to be the dumb wrestling teacher who was cheating off the smart guy."
In the '90s, Dell posted total returns of as much as 248 percent in one year, and Matter says his single-minded investment strategy served him well.
"I made a superintendent's salary in one night," he says.
Matter, of course, knew all about the dangers of not diversifying, but he was so convinced in Dell's dominance of the computer market that he became a devotee. He sold other tech stocks like Cisco and Microsoft and plowed everything into Dell, against his broker's advice.
Looking back, he says it was a "nice ride," but the past few years were rocky, and he decided to get out. He hasn't been on an Internet message board since last fall, he says.
"I totally divorced myself," he says. "It was time to move on."
Matter says he still believes Dell is a great company, but it's no longer a great stock.
Last year, Dell turned in one of its worst financial performances since going public in 1988, and its shares have tumbled almost 38 percent in the past year. It's on track for its worst annual returns in five years.
I reminded Matter of what he told me when I first interviewed him almost five years ago: "I want to sell Dell when I find out somebody can stop them."
Back then, he didn't think anybody could.
Now, he has his answer: Hewlett-Packard.
"I think Hewlett-Packard gave them a real run for their money," Matter says. He credits HP's new chief executive, Mark Hurd, with streamlining the company and exploiting Dell's weaknesses.
"He has stopped Dell from owning it all," Matter says.
Missing Michael
Something else bothers Matter, too. Michael Dell no longer runs the company day to day. He turned those duties over to Kevin Rollins, a longtime lieutenant and former consultant, last year. A Dell spokesman, however, notes that Michael Dell remains "very engaged."
Both inside and outside the company, Rollins doesn't inspire the confidence that Dell himself did.
"The whole company is about his name, his word," Matter says. "I'd be lying if I told you I wasn't disappointed that he isn't taking the role that he used to. I fell in love with what Michael Dell said, and I just ran with it. He was totally my guide."
Matter says he has no hard feelings. He made a lot of money off Dell, and his investment allowed him to start a landscaping business.
Dell, of course, isn't the company it was when Matter first invested. For one thing, it's huge — $56 billion in sales last year. Given its size, it can't maintain the growth rates it did in the past.
Problems more than math
But the company's problems are more than just mathematical. Its direct sales model isn't the unstoppable profit machine it used to be. It doesn't work as well in emerging markets such as China and India, where much of the PC growth is now concentrated.
Some analysts believe Dell not only commoditized the PC but the supply chain as well, driving down component prices for its competitors as well as itself.
Meanwhile, Dell skimped on service, sparking high-profile complaints on blogs and tainting its once-sterling reputation with customers.
To goose sales, Dell has tried cutting prices — once a sure-fire tactic for beating up on rivals like Compaq. No more. Despite the discounts, Dell's market share has fallen. Its growth rate trailed that of the overall market during the first three months of the year. That's never happened before.
Under Rollins, the company missed earnings forecasts three times in the past year, including the latest quarter.
Last week, Dell announced an 18 percent drop in first-quarter profit, falling short of the lowered estimates the company released just a week earlier.
"The competitive environment has been more intense than we had planned for or understood," Rollins said in a prepared statement.
Rollins may not have understood, but Kemble Matter did. |
