I think Dell will do just fine for at least the next few months, and I don't see them losing ground in the rest of 98. They are very focused on refining their model and hitting all of the targets wall street cares about (incidentally also makes good business sense). By that I mean they want to drive inventory turns to the max (it's in the numerator for the EVA calculation), drive cash flow up, leverage days cash outstanding (they currently have achieved a NEGATIVE days outstanding, they actually get paid for orders before they pay for the parts, better than 4 days on average), etc. No question they are a money machine.
Having said that, I believe Dell is in the minor leagues on overall corporate strategic planning, and CPQ is probably the best in the business. CPQ has shown again and again over their history that they are willing to make hard choices and endure short term pain to pick up a big long term advantage. Look at their growth and market share over the last 15 years and you will see what I mean. They intend to keep on that same path and they are now so big that the target is not the PC business but the computer business. If CPQ doubled their share in the PC business there would be almost no room for anyone else - that's just not realistic. They have to play in a bigger game to maintain growth.
Dell is just reaching that point now, and in another year or 18 months they will not be able to maintain anything like current growth with their present business strategy and execution model. They will have to make a move, and it will cost them efficiency, profitability and share price while they transition. With the very high expectations the market has set for Dell, I don't want to be holding Dell when that happens.
That said, I am holding both for the moment, but planning to add to CPQ somewhat over the next month or so. I had planned to sell my Dell position but after last week's runup I have decided that Dell still has plenty of spunk for a while, so I will unload FDX (which has been pretty dead recently), CYCH (which gave me a nice pop but which does not have the security I feel with Dell), maybe SAPHY (just too confusing with the ADRs and all) and move that into CPQ.
My sense is that there is a lot of pent up potential in CPQ and the market just needs some excuse to drive it up again. CPQ looked dead in spring of 97, after a good run up from summer of 96. Comments were about like they are now both here and on the Dell thread. I got out of Dell and put it all into CPQ in mid-march and glad I did, went from 15 (split adjusted) to 39. I moved some of that back into Dell in November and December, but still have a much larger position in CPQ than Dell.
So I guess my answer is that based on my investments I think CPQ will outperform Dell in 2nd half of 98, but as always would not recommend that anyone take my opinion as advice. |
