Mohan, Ashdok Kumar has been incorrect on Dell's price movement for the past three quarters. He has consistently said "limited upside potential." He's obviously missing a few equations.
1) 87% of the world population still has no computer. 2) Next growth phase is storage - Dell states this is their single largest growth area, 3) The law of large numbers applies to a saturated market; if Kumar calls 13% world access to system's "saturated", then how do you define "unsaturated"? 4) of those existing systems, 50% are 10 years old or more - who is going to replace those systems that need replacing? 5) Y2K - the single greatest factor for computer replacement will not occur until after September 99 when y2K problems become clearer - they'll replace box units wholesale - less expensive than altering old cobol code, 6) 75% of the Y2K fixes are short term fixes, i.e., short term solutions lasting 3 to 7 years on average (they've 'faked' the code) - all these system fixes need to be addressed permanently, 7) MD states Dell is on it's way to selling 11,000,000 box units alone in 1999 - that translates into $22 billion in sales for boxes at $2000 ASP, at $1800 ASP it's $18.9 billion. You add adtl. $3 billion in peripherals (remember, for each $1 spent on the box, $3 are spent on peripherals - software, etc. - Gigabuys didn't exist last year), $3 billion enterprise solutions, $.75 billion storage, and any addtl. benefits from service and addtl. selling agreements, and you have about a $29+ billion year which is 3.9 X current market cap. Dell has traditionally traded at 5.4X revenue to market cap, translated to current price would be $63.
It's not difficult to see Dell doing $40 to $45 billion 19 months from now. There's also a significant shift in the telecommunications arena - phones speaking directly to systems over the net which, in itself, will spur significant growth. The new 3G standards comes into play principally in the year 2000, i.e., worldwide roaming, internet connectivity, fax portability, etc. DSL, 3G, wireless - they all turn right back to box on the desk. The Dell computer.
I do believe Kumar to be exceptionally intelligent, however, is it possible he's too smart? Isn't he, like many analysts, micro analysizing processes, forgetting the macro picture? My Indian friends tend to be extremely analytical and love to micro-probe problems.
How could anyone with reasonable intelligence (let alone exceptional) predicted a Yahoo share price of $210? |
