Jun. 27 (Austin American-Statesman/KRTBN)--Watching his normally
high-flying Dell Computer Corp. stock languishing in the mid-$30s,
Walter Karnstadt of Georgetown changed his mind about the sporty new
truck he wanted.
He decided to borrow the $30,000 for the truck rather than sell Dell
stock to pay for it.
"If it went up to $60 or $65 (per share), I might have sold off enough
to buy it," said Karnstadt, 44, who bought his first Dell shares five
splits ago, in 1996. "I just think Dell is worth more than that."
If that's as tough as it gets for the region's estimated 40,000 Dell
shareholders, then area merchants, restaurateurs, home builders and tax
collectors who are mindful of the Dell effect on the economy can sleep
peacefully.
Shareholders who watch the market may be a little more restless these
days, however.
Dell stock is down more than 30 percent since its split-adjusted high
of nearly $55 a share in early February. Perhaps more disappointing is
the fact that it is off 15 percent since its two-for-one split March 5,
based on Friday's closing price of $36.983.
That's out of character, reversing a pattern of racing back up after
previous splits. Dell investors, thousands of whom have been enriched
because of their Dell shares, had become accustomed to that. But many
analysts believe those days are over for the foreseeable future.
Merrill Lynch & Co.'s Don Young expects Dell to hit a high of only $50
a share in the next year.
Still, even though the stock has been behaving like the honor student
who suddenly starts bringing home C's, only the Johnny-come-lastlies
are hurting.
Take, for example, the unidentified and unfortunate Dell enthusiast
who called stockbroker Carl Stuart's radio show on KLBJ-AM several
Saturdays ago. He admitted putting $750,000 into Dell at $50 a share.
He's down nearly $200,000, on paper.
But he's a rarity. For the happy majority who have invested in Dell
over the past several years, it has been easy money. The stock has
appreciated more than 2,500 percent in the past three years.
Even someone who bought Dell for the first time Sept. 4, just before
it split two-for-one, had realized an 80 percent gain by early
February, when the stock reached its high. For a while there, nearly
everyone wanted to hop on the ride.
Last fall, Austin police were looking for a bank robber who took the
cash and bought a pickup truck and Dell stock.
And each summer, the company's annual shareholder meeting -- this year
it is scheduled for July 16 at the Austin Convention Center --
typically is filled with happy shareholders.
"Dell has been true religion to stock investors in this town," said
Stuart, adding that he believes the market is making a fundamental
reassessment of the stock.
"I do not pick up any significant disillusionment with Dell in Austin,
Texas," he said.
So don't blame Austin for Dell's doldrums. Apparently those pesky
money managers on Wall Street, who control billions in mutual funds and
pensions, are to blame. They prefer to be the first ones out of a stock
that has peaked rather than the last ones in.
"This is not a company coming out of nowhere with a new business model,
" said Lou Mazzucchelli, vice president of Gerard Klauer Mattison & Co.
Inc., a stock brokerage in New York. He was recalling the good old days
for Dell investors, when it repeatedly crashed the PC party with record
revenue and profit and proved the direct-model doubters wrong.
"This is the king of the hill," Mazzucchelli said. "The street is
looking for signs of weakness, instead of strength."
Dell's short-term decline may actually be healthy, some say, providing
a timely reality check for Dell devotees.
"Dell has been on a rampage for the last four years," said Josh
Pottinger of the A.G. Edwards & Sons Inc. brokerage in Austin. "It's
bound to fall back and bound to rest. It's just got to."
Still, Karnstadt's response to the stock's recent performance may
foreshadow a time when Dell investors in Austin actually postpone major
purchases.
Such a retreat could send shivers through Austin's hot economy,
bankers and economists say.
"You really are seeing a lot of people feeling good because of Dell,"
said Robert Huthnance, president of Frost Bank-Austin, which estimates
that Dell shares have created more than 2,000 area millionaires. "The
reverse could happen," he said. "If it goes down dramatically, people
might get kind of bluesy."
Interviews with mortgage companies, automobile dealers, boat
businesses and others merchants turn up few worrisome signs so far.
Many of Amy Maddox's customers at Countrywide Home Loans in Northwest
Austin are Dell shareholders. And often, Maddox said, they cash in
their stock and use the proceeds for home down payments.
That, she said, hasn't changed.
Likewise, sales of luxury cars have been strong in the Austin area;
some of them probably include purchases by Dell's affluent
stockholders.
For the first three months of this year, sales of BMWs were up 60
percent, Mercedes Benz sales were up 27 percent, and Lexus sales were
up 153 percent, according to vehicle registration data for the
five-county region.
And while the discretionary spending power of 40,000 local Dell
shareholders who feel flush is significant, Dell's real impact stems
from its Austin-area payroll of 18,000 workers, the goods and services
it buys from local vendors and plant expansions, such as the $38
million manufacturing facility that ramped up last fall in Northeast
Austin.
Counting suppliers and other companies in the region that are here
because of Dell, the company gets credit for creating about 50,000
jobs, or 8 percent of the regional total in 1998, concluded a recent
study for Dell by Angelou Economic Advisors Inc. Direct and indirect
purchases totaled $829 million in retail sales, or 6 percent of the
region's total, the study said.
"No other company in Austin has had that impact," economist Angelos
Angelou said.
"When everybody is feeling good, they tend to spend," Frost Bank's
Huthnance said.
Even Dell shareholders who admit disappointment about the stock's
aberrant performance almost dutifully express their gratitude for the
ways in which the Austin-born computer company has changed their lives.
"The past few months have not been the dancing-around-the-room times
--that is for sure," acknowledged Alison Nabors of Horseshoe Bay, whose
first investment in Dell was in the fall of 1995, six splits ago. "But
I do not feel that Dell as a company has let its stockholders down in
any way."
She has been able to quit her job, help pay her son's college tuition
and travel with her husband, Bachman.
"The credit card is paid in full every month without exception," she
said. "I know I spend more frivolously than before, and I am better
able to help others and make contributions to charities."
By Jerry Mahoney
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