Yahoo post on Barron's DELL comments:
Here is the text from Barron's:
The Dell debacle Friday wasn't spurred by any momentous announcement by the company. What happened was that an analyst at BancBoston Robertson Stephens, Daniel Niles, put out a note saying that Dell had a "soft" finish to its latest quarter, which ended January 31. The result, Niles predicted, was that Dell's revenues would total $5.2 billion for the three months, below his original expectation of $5.5 billion.
Niles left his fourth-quarter profit estimate unchanged at 31 cents, but his concerns about "intensified" competitive pressure in the personal-computer market jolted Dell's stock. Dell has risen ninefold in the past few years, not because it makes demonstrably better PCs than Compaq Computer or IBM, but because of its highly successful direct sales approach. But with Compaq, IBM and Hewlett-Packard now gunning for Dell and seeking to emulate its selling style, Dell's edge may be dulling.
Dell stock is vulnerable to any evidence of an eroding competitive edge because of its high multiple. Before its drop Friday, Dell was trading at 100 times estimated profits in its just-concluded fiscal year and at 72 times projected 1999 earnings. For the week, Dell was off 11 1/2 to 89 7/8, but it's still up 22% in 1999. The Dell drama should resume Tuesday when the company is due to report its quarterly results.
My comments:
1) I don't believe there is any basis for a conjecture that Dell's sales slowed during the end of the 4th quarter, unless that evidence came directly from Dell Computer. It conflicts with evidence from recent market survey data showing Dell unit shipments in Europe increased 72% in 98Q4 vs 97Q4.
2) The nature of "competitive pressure" apparently isn't understood either by this analyst or by Barron's, which has run cover stores predicting the end of growth in the PC market in the past.
3) Nor is the value-added which Dell ships and Compaq or IBM or HP does not ship, such as preloaded software network-ready or the ability to drop-ship large orders to multiple locations, understood by Barron's.
4) What is obvious, though, is that the record PE has a lot of people worried, ready to jump ship at the first indication that "the end is near." A PE higher than EPS growth rate results from psychology, not financial analysis. So increased volatility and speculation should be expected if the market doesn't gradually lower DELLs PE as market share rises.
5) When the earnings release comes out Tuesday after the market closes I won't be surprised to see solid sales and net margin growth, in line with or above the consensus.
mr sw hw guy |
