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Technology Stocks : Dell Technologies Inc.

DELL 119.68

-0.6%

Jan 13 3:59 PM EST

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To: gc who wrote (80074)	11/14/1998 2:43:00 AM
From: Richard Tsang	Read Replies (2) of 176387

I am concerned that the 65% EPS growth may not be sustainable. 3Q98 vs 3Q97 data: Net sales growth = 51% Net income growth = 55% EPS increase (basic) = 58% EPS increase (diluted) = 65% Why has Dell been able to report a 10 point higher increase in diluted EPS over its net income growth? I suspect that is due to the share buy-back which results in a reduction of shares outstanding. The buy-back has slowed in the last Q. The shares (basic) remains at 1264 for both Q2 and Q3. The buy-back (based on my estimate) is about $36 million. This is deduced by the difference between the increase of stock holder's equity (1947-1599=348) and the net income (384) for the quarter (384-348=36). All numbers in million $. Why the slow down in buy back? Maybe Dell needs the cash for expansion in overseas facilities. The big increase (72.5%) in "other assets" (680 in Q3 vs. 394 in Q2) seems to explain the spending in these initiatives such as Brazil and China - expenses sitting in the other assets account waiting to be capitalized. Depreciation not kicked in yet this Q. Given the same number of basic shares for both Q2 and Q3, the buy-back seems to have just offset the number of shares that were exercised by the employees in the period and you can consider this 36 million as actual cost of compensation that was not accounted for in the EPS calculation, but taken out from stock holder's equity. Several other indicators I don't like: - The accounts receivable jumped to 40 days from 37 in a quarter. This,coupled with a static inventory level, is suspicious of some last minute effort to book sales. Booking sales means taking inventory out and move them into accounts receivables. Hope I am wrong! - Accounts payable also jumped 4 days to 56. Why? Delaying payment is good tactic but would hurt supplier relationship. Cash-flow issue? - With business growing at 51% I would think that the deferred revenue on warranty contracts would increase in similar fashion - it went up only 5% form 235 last year to 247. What is happening here? Would appreciate to hear comments from other Dell watchers. RT PS: Above are my own analysis based on available data from the Dell homepage. Should not be used for decision to buy/sell the security.

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