Gene, I am taking the liberty of posting your analysis of DELL [on the Compaq thread] over here so that everyone can truly understand the potential for this fabulous company. BTW, a wonderful synopsis of DELL and what's to come.
Message 7711229
To: +Steve Schroeder (47272 )
From: +gene piccoli
Monday, Feb 8 1999 3:14AM ET
Reply # of 47332
Steve,
No question one of the reasons Dell's stock has done so well is Michael Dell's mastery
of the direct distribution model and ability to avoid any major mistakes. Your question
re what the future holds, however, is an excellent one. That, in fact, is becoming
increasingly the question on WS's mind as Dell's stock continues to outperform the
sector and the whole Nasdaq.
There is a reason why some Internet stocks trade at ridiculously high valuation models,
not that I agree or allow myself to buy any of these issues. Regardless of how much
"conventional wisdom" could debate these stratospheric valuations, the market continues
to be willing to drive these things higher. So what is really happening here?
Consider this; it is expected by 2001, one billion people will be hooked on to the
internet, roughly 1/4 of the planet. Never in the history of capitalism has the world ever
seen a product grow so quickly with such absolute penetration. Yet, we are only about
300,000,000 units into this 1 billion+ market. So the potential growth for hardware,
software, and connectivity remains huge. So where does this leave Compaq and Dell?
In a great position, not unlike Cisco, Lucent, Microsoft, or Intel. Buy all these, put them
away, and you will make 25%+ on your investment per year indefinitely. Compaq vs
Dell? That another question.
Firstly, as Gabriel's earlier post today shows, Dell has by far any away the best growth
rate of the sector. I believe today's European numbers saw 60%+ growth in Europe, vs
Compaq's 17% or so. This has been pretty well the case in all of Dell's markets. The
main reason for this spectacular growth is that Dell only has about an 8% global
marketshare vs Compaq's 28%. Any first year economics student will confirm to you
that a 50%+ sequential growth rate is still likely for many quarters to come, perhaps
even years, given the small global market share and incredible size of the market.
That is why, Steve, Dell has a market cap of $128 billion. It is growing at 50%+, and
can reasonably be expected to continue this pace for a while longer. Also, consider that
all of the problems plaguing the tech industry such as declining component prices, or
inventories, hardly affect Dell. Compaq is always accused of channel stuffing, Intel is
always at the center of price wars, and Microsoft is always fighting off the Anti-Trust
lobby. Despite these obstacles, all three have been great stock to own. Yet Dell suffers
from none of these problems.They could care less about falling DRAM prices. With 3-6
day inventory, no dealers to placate, make-to-order model, $10 million a day in internet
orders, Dell just continues to feed this exploding market efficiently and brilliantly. That is
why, Steve, that Dell continues to defy conventional wisdom logic, and why its investors
will continue to pay higher valuations.
Gene Piccoli |
