Larry, since I can't sleep...I'll take your numbers (taking on face value there is some sort of accuracy in them)..add some thoughts...and ask you to do some calculations and get back to me...
First of all, I don't remember anyone here proposing that Dell will grow revenues at 50% ad nauseum....or in this case 9 more years....why dont we look at a gentle (more reasonable) decline of revenue growth and start from there:
Year Dell rev. Growth rate Overall rev. (10% growth p.a.)
99 5.18 38% 55
00 7.41 43% 60
01 10.38 40% 66
02 14.21 37% 73
03 19.18 35% 80
04 25.50 33% 89
05 33.40 31% 98
06 43.02 30% 108
07 55.04 28% 119
08 70.00 27% 131
* Assumption that Dell can grow revenues at around 25% for next few years following 2008.
Now, these are big numbers, indeed, but certainly things are beginning to look more reasonable....Dell's share of total hardware revenue sales have now dropped to close to 50%...but wait...
In your hardware total (55B), are you including storage, servers, workstations?? Or just PC's? What about computer periphrial sales (Dell is in that business, you know)....If you have not included these items, perhaps you should (in the overall revenue total)...that brings down the % (70B in Q1, 2008) to way below 50% of total revenues...
But wait, this does not account for any NEW product areas that Dell may enter between now and 2008...Now, given that 3 years ago, Dell had virtually no presence in servers, workstations, storage, and computer periphrials...wouldn't it stand to reason that over the next 9 years....Dell will be entering (also) entirely NEW markets (who knows what? Hand-helds, ISP revenues, other electronic gadgets, etc.)..I certainly DONT know, but I'm certain some fairly big opportunities will open up, and Dell will seize upon them in short order...
So, when all this is thrown in the hopper, I could see Dell taking, on average, 20-25% of total revenue growth of ALL the segments that they are participating in by 2008 (maybe some, like PCs, 40%, maybe others, like hand-helds 5%....but averaged out at 20-25%)...So, perhaps, and I am just musing here, Dell could have 70b in revenues in a 1Q, 2008 in which 300b in revenue is realized in all the market segments in which they play....Impossible?
In 1990, if you would have told anyone about Dell, AOL, Cisco, etc...they would have laughed about you!
But, Larry, you are probably saying....that's great John, but still every year, Dell's revenues are falling (!), so the stock will STILL go nowhere...
Not so fast Sherlock!
What if margins inched up each year (as the trend), so that by 2008 or so, net margin were on the order of 15% (or great) with continued stock-buybacks, etc....It is not unreasonable, therefore, to assume that earnings growth could be in the mid-30's y-o-y, with EPS growth at around 40 y-o-y (in 2008)...now add in a premium for growth.....and you have a stock that may be able to support a PE of 40,50, or even 60 in 2008....(After all, look at the big decrease in Cisco and Microsoft...yet, check out there PE's)...
I'm going to let you do the calculating on this one Larry, but I figure if I am right (and say Dell holds a 50 PE in 2008), that Dell could appreciate at 30-40% a year for the next 9 years....not bad..
Now, granted, my revenue assumptions are aggressive here, BUT, the internet has changed a lot of things here, my friend, and if their was ever a time (or a company) that could grow at a fast % (multiple), as a multi-billion dollar company, it is Dell...
So, the ball is back in your court...I figure I have done more work than you on the go-round....how 'bout playing with these numbers/assumptions and getting back to the thread? |
