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Technology Stocks : Dell Technologies Inc.
DELL 127.22+3.8%3:59 PM EST
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To: Jim Patterson who wrote (55039)7/30/1998 10:11:00 PM
From: Kayaker  Read Replies (2) of 176387
 
I oughta have my head read, but I'm gonna take another whack at this:

If ASP's fall, then revenue growth will be lower than it could have been if DELL could have avoided the problem... Profits come from revenue and the slower it grows, the harder it is to grow EPS.

You cannot conclude this based solely on the fact that ASPs have fallen. First, component costs have fallen at a greater rate than ASPs. Second, when ASPs fall, the number of units sold goes up. It is therefore impossible to know if the EPS is up or down based on ASPs alone.

This is a negative for the Stock

You cannot look at Dell (and falling ASPs) in isolation. You have to compare it to its major competitors. The numbers released this week show that Dell is growing far faster than any of the other box makers, despite the fact that some of them were selling at firesale prices to reduce inventory. Earnings from these competitors were dismal. Therefore in this period of falling ASPs, only Dell (and possibly Gateway) is doing well. The others cannot continue selling at these low ASPs forever. So Dell gets healthier and the competitors get sicker. It is this contrast (and not just Dell's returns) that has a major (positive) affect on the stock price.

PS. By the way, I told you last week that I was buying Aug calls when you were going short. I bailed out Tuesday (28th) morning. Care to compare returns?
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