Hi Mohan - NEVER BET AGAINST MICHAEL DELL - It is now official - <G>. At least one publication gets it...Fortune Investor.
Check this article out - what really struck me was the reason behind that Kumar fellows upgrade and raise of estimates for Gateway from 0.6 to 0.9 - he was piqued at being upstaged by Niles - I mean heavens, if this is why these idiots do upgrades and downgrades...... and people think they may actually KNOW something - <LOL>.... (I know how much you admire analysts ... <VBG>).
pathfinder.com
________________________________________________________
Never Bet Against
Michael Dell
When Dell's stock slipped for two
weeks in February, some
analysts talked up Gateway.
Then Dell announced his next
moves.
Amy Kover
When Michael Dell stopped by FORTUNE
in late February, it seemed as if his
company's days as the darling of the PC
world were ending. For the past two years
investors had gotten used to around 50%
annual revenue growth from Dell Computer,
and its stock price had boomed 1,214%, to
a high of $108.63. But on Feb. 12,
BancBoston Robertson Stephens analyst
Daniel Niles slashed his fourth-quarter
revenue estimates from the consensus $5.5
billion to $5.2 billion--a mere 38% or so
jump from fourth-quarter 1997--citing
"flattening component costs and increased
direct competition." Richard Gardner of
Salomon Smith Barney chimed in with similar
concerns.
Niles turned out to be eerily correct: Four
days later Dell reported fourth-quarter
revenues of $5.173 billion. By Feb. 19 the
stock price had been battered down 26%,
to $80. So some analysts began looking
past Dell and casting eyes at former
consumer-PC outcast Gateway 2000.
Despite a spotty earnings record and a
reputation for poor service, the company
had developed a three-pronged marketing
strategy that some experts believed would
characterize the future of the PC
industry--and maybe even propel Gateway
past Dell.
Dream on. By early March, Dell had
confounded its doubters by announcing two
major developments in rapid-fire
succession, and its stock recouped some of
the losses. (For that matter, even its
"disappointing" 38% increase in revenue
would be a fantasy come true for most
companies.)
First, Dell launched an e-commerce
Website, Gigabuys.com, through which it
will sell more than 30,000 outside products
such as software, printers, and even games
(adding to its $14 million in daily sales
involving the Web). It's a great way for the
company to squeeze more revenue from its
consumer base. And as Michael Kwatinetz
of Credit Suisse First Boston puts it,
"Through Gigabuys, Dell can build a
stronger, longer-lasting relationship with
customers than by simply selling them a
box."
Also exciting, Dell cut a seven-year, $16
billion pact with IBM for components used
mostly in the very large computers that it
sells to major companies. Because IBM's
technology is considered top quality, the
deal could strengthen Dell's position in that
business. To produce components itself,
Dell would have to get into a whole new line
of business. "Essentially it's a marriage of
one company that has terrific technology to
one with great marketing," says Walter
Winnitzki of Hambrecht & Quist. And analyst
Phil Rueppel of BT Alex. Brown predicts that
there could be more Dell-IBM deals to
come. For instance: "It would make sense
for Dell to produce PCs for IBM." Sums up
Mark Specker of the research firm
SoundView: "Once again Dell continues to
prove how fiercely competitive it is, and it
won't be left behind when it comes to
execution."
Dell's snappy comeback emphasizes that it
and Gateway are playing in very different
leagues. Gateway focuses mainly on
consumers and small companies, whereas
Dell deals with bigger businesses and on a
much larger scale.
So why did analysts get so excited about
Gateway in the first place? The buzz
started with Ashok Kumar, tech analyst for
U.S. Bancorp Piper Jaffray. Kumar had
actually downgraded Dell back in November
and was peeved that Niles' Feb. 12
downgrade had overshadowed his. Taking
another bold leap, on Feb. 22 he upgraded
Gateway from a "buy" to "strong buy." He
also announced a ridiculously inflated
estimate for fourth-quarter earnings--90
cents per share, vs. the consensus 60
cents.
Annoyed Gateway officials told analysts at
a recent conference to stick with the
consensus. But Kumar's call caught on.
Within two days, Gateway's stock had
soared by over $10, to a 52-week high of
$83. (It has dropped back since then.) And
NB Montgomery upgraded its rating to "buy"
from "hold."
The Gateway boomlet was based on more
than just one analyst's estimate. At its root
is the general assumption that the entire PC
industry will be facing slower revenue
growth and increased price competition as
consumer demand for high-priced
computers eases: With PC ownership
expanding to lower-income groups, fewer
new buyers can afford expensive models. In
that sort of world, the only way to make
money is to persuade people to buy
components and, someday, another
computer. And Gateway has a plan to
capture such a recurring revenue stream by
making itself accessible.
For instance, it is populating America's strip
malls with what it calls Country
Stores--storefronts designed to lure
Sunday drivers and small-business owners
as well as provide a service center for
veteran users. It's also learning to use the
Internet, booking $10 million per day in
Web-related sales. In addition, Gateway
actually beat Dell to the punch in
e-commerce by buying a portion of online
retailer NECX a week before Dell launched
Gigabuys.
A brilliant strategy isn't enough, however.
Gateway also has to execute it. So CEO
Ted Waitt has brought in a new
management team, which he hopes will
solve the company's periodic problems of
poor service and delivery. But there are
anecdotal signs, at least, that things have
yet to improve. Money.com, for example,
recently received a note complaining,
"Since Jan. 18 (Gateway's internet) service
has been extremely poor to nonexistent."
Nevertheless, something clearly has
changed: Dell's late-February slide gave
Gateway an opportunity to make new
friends, even if they're back in love with
Dell now. "Gateway showed that it's a
trendsetter," H&Q's Winnitzki says. So there
still might be room for Gateway to
flourish--albeit in Dell's shadow.
Buzzwords
Bathtub curve:
How volume typically flows over the
course of a day--heavy in the
morning (everyone gets in); flat
during the day (lunch); heavy at the
close.
Shadow trading:
Moving in and out of the market
without anyone's noticing.
Issue date: March 29, 1999
Vol. 139, No. 6
__________________________________________________
Regards......
Have a GREAT day... |
