Actually,
A number of the analysts including Kumar, Niles and Salomon Smith Barney are peddling a nominal low of $30 per share as we head into the June quarter due to seasonal factors and some added competitive risks. This is due some say to the increased risk of DELL missing a quarter near term.
There was amazing predictive consistency in the analysts reports and almost all of them came very close on the actual results. So in general they did better than most of us on the thread. The Prudential Securities report by Kimberly Alexy was the most accurate report I found both with respect to units sold, revenues and EPS. Although Meathead called the Revenues better than she did. Of course, the analysts probably see each others reports and they can copy what they want.
Some of the analysts are saying no upside in the stock price until the company navigates the increased seasonal and competitive risks of the summer. They see potential for upside in the new businesses and also with the introduction of Windows 2000 which is currently scheduled for October release. Y2k lockdown fears have been reduced.
Niles (VCALL) said he would be a buyer at $31.50 but not at $39 currently. But in 6 months the EPS will catch up with the current price.
So the mid to the low 30 is definitely a possibility. Longer term the issue is the moderating growth rate and how that translates into a PE.
The margin issue is interesting and somewhat difficult to resolve into its elements. Mention has been made of lower employee productivity
due to the need to hire and train new employees in advance of need. Clearly, the company has said to expect these margins to be maintained for a while.
Sources of reduced margins appear to be more than one:
One, product margins in China and South America seem to be half of what they are here thus diluting the gross margin.
Two, the need to add employees to new manufacturing facilities probably affects both SG&A and COGS depending on whether they are manufacturing personnel or sales support personnel. This also can dilute the gross margin.
Three, the numbers I saw from Alexy did not indicate much pricing pressure in the Desktop or server area this quarter. But there was considerable ASP drop in the Notebook area. Also, there was a shortage of display screens which may have cost DELL a day or two of production (Meredith, CC). Shortages can also affect margins by driving of prices for scarce components.
Basically the business looks very solid and running very efficiently for its size and growth rate. My take is that long term there is no problem with DELL as a core holding but for the next 3 to 6 months the stock price will probably be range trading between 30 and 40 dollars per share. This is way off my first set of expectations. However, it is not inconsistent with company guidance. Perhaps, we should listen more carefully?
The seasonal factors will affect the other PC manufacturers as well.
CPQ is still a wild card and they are not expected to really recover until next year. Perhaps, Windows2000 will provide the stimulus for an increase in PC sales. By the way, a lot of the low end PC's will not work with Windows 2000 which requires 64M of memory and at least a 300MHZ processor. So there could be a host of replacements of these " obsolete machines" at that time.
JMO
Jim Kelley |
