RE: You won't get a 3% drop in net margins even if sales dropped
significantly in that region.
As I said before,
The famous last words will be, The reigon was only 6 % of sales. :)
I know you do not like my simple math and accounting, But Gross and net margins are not linner.
for instance, (This is an example, Not what is going to happen)
If AP droped to 0 that would be according to you $ 223 Million of revenue.
Dell's Net is 7.7 % last Quarter.
According to you, that would mean that earnings would drop
17.17 Million or 5 cents that is 223 * 7.7 %
I counter that if they lost 223 million, the impact would be substantial Rev's would drop appropiately.
lets even assume that COGS would drop by the appropiate ammount
172.85= .78 * 223
New numbers
2965-2297=667.94- 469(every thing else)=198.94
assuming that SG&A stay the same, (fat chance)
you are looking at a 50 mm decrease or 15 cents.
15 cents is a 22 % drop in EPS on a 7 % sales drop
Net drops from 7.7 to 7% a 10% decline. (Hmm, COGS are more important that I thought)
Key point, small decrease in sales leads to greater drop in profits.
Now here are the fat chance items.
Can management handle inventory in such an enviroment ?
Yes DELL has invnetory dispite what you think or think you know.
Will the investment income column preform the same ?
Will ASP's stay the same in such an environment ?
ie, if sales fall off in one region, will it create greater competition in another market ?
With a drop in units will part pricing be the same ?
Last, Dell procures most of its components from the reigion,
Companies in the area are going bankrupt right and left. LSCC lost its back log for atleast 6 months over there.
What if the companies DELL buys from dissappear ? or more realisticaly are unable to produce the number of parts they used to due to financial constraints ? What happens to DELL's costs if they are forced, due to lack of availabality, to buy parts from some where else. If this were to happen, I am sure that they would not be the only ones bidding on parts from small suppliers in other parts of the world.
Will companies continue to buy dell in a country where there is great National loyalty ?
Will companies continue to buy Dell when the Price just went up by 100% when the local machine only went up by 50%.
Will any one buy PC when the Price of Crude Oil (you know the one comodity that is involved in everything in the world) just went up by 100% ?
Will parts remain cheep in a reigion where cost could go up 30,50, posibily 100 %, Maybe even higher ?
Then again The stock may just go up like it did today, Just like MU did in 1995.
It is only a matter of time before the above issues show themselves in earnings. The more money that is loaned to the AP region, the longer the delay will be. But the longer the delay, the greater the fall will be.
Jim |
