Michael, I almost agree with every point you made, except (paraphrasing your points):
1. Growth is decelerating. Look at Dell's plans for Asia and today's announcement concerning China;
2. Barriers to entry. The real barrier to entry is the know-how of inventory management. Compaq and Hewlett-Packard haven't been able to copy this. So, it's not a matter of capital expenditure, it a matter of knowing how to deploy your assets.
3. Box prices are falling like a rock True. But component prices have also been falling like rocks, so profit margins really haven't changed. In fact, sales are up substantially (perhaps in part to lower box prices, perhaps in part to the up-grade cycle). It's called price-elastiscity of demand.
4. DELL reminds me of the Holland Tulip bulb mania. Only if you think of computers as lacking economic value. Speculating in the early days of AT&T is a more appropriate comparison. Computers are used in daily commerce (like telephones), computers become obsolete and must be replaced. In addition, the penetration of the market is nowhere near complete.
Almost a year ago I went through very similar reasoning to yours, but I concluded that my concerns were overblown and I bought. I've been happy ever since. I can well understand your concern about the valuations, but I think you'd be playing with fire by shorting.
Regards,
Paul |
