Jill, thanks for the sobering report. I think that all Dell investors should heed this part of the analysis:
maybe corporations are just flat out cutting back on capital expenditures, including computers. Amidst a strong stock market and a strong economy, traders often prefer to ignore the fact that corporate profits in 1998 were terrible. In fact, as measured by as-reported S&P 500 profits, the GDP corporate profits data, and BusinessWeek's 900 company calculation, profits were down. For anyone that has worked at a Fortune 500 company, as your current author has, the ramifications of this are well know. Companies hold back. Even just not increasing the capital budget means slower growth for their suppliers. When oil company profits are weak, no one is surprised that the oil drillers and other suppliers have problems. Is it really all that surprising that commercial computer purchases are weak now, after a year of lower profits for major corporations?
I think that these concerns are real short-term. I also believe that Y2K budget lockdowns will take a toll. The question is the long-term strategic implications for Dell. Frankly, I think that a slow market represents an opportunity for Dell, although it will seem to be anything but fun if the price of the stock gets hammered. The reason is that it will provide the catalyst for the weak players to initiate exit strategies. I expect HWP and IBM to make major moves to accomplish a strategic withdrawal from what has been, for them at least, a brutal market. This means that there will be incremental market share available for Dell, but the pricing pressure may be such that earnings will not grow commensurate with sales. But in a market share strategy that's OK, because what you are looking for is the potential when pricing eases.
Here is the extent to the advice I would give to anybody: if I am looking at Dell for the long haul I would snap up shares at significant dips, but I would be prepared for a long wait to make significant money, because the market must be convinced that there really is a turnaround following consolidation. I have no idea how long that might take.
TTFN,
CTC |
