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Politics : Formerly About Applied Materials

AMAT 228.84

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To: Proud_Infidel who wrote (30508)	5/22/1999 1:12:00 AM
From: Gottfried	Read Replies (1) of 70976

Brian, OT *** can you help? Seems someone said a few days ago that most of Dell's profit comes from trading derivatives of DELL. I'm not even sure it was said here. Believe M. Burke's thread carried this also. Forbes ASAP has the explanation... forbes.com But I don't get how Dell could buy their own stock for $22 when the average price that Q was $56 [3Q99]. Gottfried Here's the story... IN THE LAST ISSUE OF Forbes ASAP I wrote a story for "Show Me the Money" in which I revealed that Dell Computer nets more money playing its own stock than it does selling computers. The response was overwhelming. A Dell PR manager called demanding a retraction. Soon I received cryptic voice mail messages from Wall Street analysts demanding to know how I had crunched the numbers to support my story. Here, by popular request, is the methodology used: First: Dell's 10-Q and 10-K SEC filings clearly state the number of shares the company repurchased during a given period. They also disclose the average price at which Dell repurchased the shares. None of these figures is in a table; it must be found in the text of the filing. Second: In calculating how much money the company saved in its stock buyback strategy, I assumed that Dell's alternative would be to repurchase its stock in a number of transactions throughout each quarter. This is a cost-averaging technique commonly used when accumulating major quantities of stock. I took the average closing price of Dell's stock during the period and subtracted the buyback price to figure Dell's average savings per share. For example, Dell repurchased shares at $22 in Q3 1999 while employing the reverse collar strategy. The average closing price of the stock during the same period was $55.99. Thus, Dell saved an average of $35.99 on each share it repurchased. Third: I multiplied the per-share gain times the number of shares Dell repurchased. That figure represents the amount of money Dell saved its shareholders by avoiding a more pedestrian open-market buyback strategy. This information showed that Dell "made" $3.1 billion over the past three years buying back its own stock, compared to a net income of $2.5 billion selling computers. --David Raymond, draymond@forbesasap.com

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