DELL: 3Q00 SHORTFALL; REITERATE BUY AND $60 TARGET

                                                        Dell Computer Corp(DELL)
                                                                Rating: 1H
                                                                10/19/1999 

                                                    Salomon Smith Barney ~ October 19, 1999 
                             10/19/99 Dell Computer    (DELL $41.31,1-H,Tgt $60.00) Richard Gardner
                             --SUMMARY:--Dell Computer--PCs
                             *Dell announced a 10% EPS shortfall for the October quarter yesterday after
                             the close. The shortfall is attributable to a sharp rise in DRAM memory
                             prices at the end of the quarter. While Dell's memory prices doubled
                             between early July and last week, Dell was able to manage through these
                             earlier increases--another 25% spike in prices last week was the final
                             straw.
                             *We are lowering 3Q00 EPS from $0.20 to $0.18 and 4Q00 EPS from $0.22 to
                             $0.21. Our changes are entirely attributable to lower than expected gross
                             margin--we have not changed our revenue estimates. Management continues to
                             cite strong overall demand.
                             *Reiterate Buy (1H) rating and $60 target. We would be aggressive buyers of
                             Dell shares below $40.

                             10/19/99 Dell Computer    (DELL $41.31,1-H,Tgt $60.00) Richard Gardner
                        

                             --FUNDAMENTALS--------------------------------------------------------------
                             Current Rank........:1H Prior:No Change Price (10/18/99)....:$41.31
                             P/E Ratio 01/00.....:55.8x              Target Price..:$60.00 Prior:No Change
                             P/E Ratio 01/01.....:39.7x              Proj.5yr EPS Grth...:25.0%
                             Return on Eqty 99...:89.0%              Book Value/Shr(00)..:1.29
                             LT Debt-to-Capital(a)N/A%               Dividend............:$N/A
                             Revenue (00)........:24329.00mil        Yield...............:N/A%
                             Shares Outstanding..:2784.0mil          Convertible.........:No
                             Mkt. Capitalization.:115007.0mil        Hedge Clause(s).....:
                             Comments............:(a) Data as of the most recently reported quarter.
                             Comments............:

                             10/19/99 Dell Computer    (DELL $41.31,1-H,Tgt $60.00)
                             --OPINION:------------------------------------------------------------------
                             CEO Michael Dell and CFO Tom Meredith hosted yesterday's call.

                             Meredith began the call with extremely upbeat comments regarding both
                             demand and component availability. He characterized overall PC demand as
                             very strong, and said that the company is even more comfortable with the
                             current demand outlook than it was during August's upbeat earnings
                             conference call. On the component front, Meredith commented that
                             availability is improving, even for flat panel displays which have been
                             constrained for several quarters. At the company's recent analyst
                             meeting, Meredith expressed his belief that Dell would be experience
                             minimal top line impact from Taiwan-related and other component
                             constraints during both 3Q00 and 4Q00 and Meredith reaffirmed this belief
                             during yesterday's call.

                             Meredith attributed the likely shortfall during 3Q00 to a sharp rise in
                             DRAM prices at the end of the quarter. While Dell's contract price for
                             DRAM doubled between early July and last week, the company had apparently
                             been able to manage through these earlier increases via the combination
                             of normal price declines in other component categories and the management
                             of other component costs. Last week, however, Dell's DRAM suppliers
                             informed the company of an additional 25% price hike which did not leave
                             the company sufficient time to absorb the increase.

                             Meredith quantified the impact as a $70-75 per box increase in cost of
                             goods sold applicable to 30-35% of the company's total unit shipments
                             during the October quarter. This reduces our gross margin for the October
                             quarter from 21.6% to 20.4% (versus 22.0% in the July quarter) and our
                             EPS from $0.20 to $0.18. According to Meredith, there will not be any
                             significant reduction in operating expenses to offset the gross margin
                             shortfall.

                             In response to continued DRAM price hikes, Dell intends to reduce the
                             amount of memory per system. Meredith sounded optimistic about Dell's
                             ability to manage through further increases in DRAM pricing during the
                             fourth quarter and still deliver consensus EPS. We are lowering our 4Q00
                             EPS estimate from $0.22 to $0.21 to reflect a more gradual recovery in
                             gross margins.

                             OUTLOOK
                             It is important to note that we have not changed our revenue estimates
                             for Dell's third and fourth fiscal quarters. We do not believe that
                             yesterday's announcement is indicative of a deterioration in demand or in
                             Dell's relative competitive position. The only significant risk to our
                             current revenue estimates for Dell, in our view, is component
                             availability issues related to Taiwan, but Dell management seems
                             increasingly comfortable with its ability to obtain the components that
                             it needs to maintain the company's current revenue trajectory. Moreover,
                             we believe that overall demand for personal computers will remain robust
                             during the fourth quarter despite recent increases in components pricing.
                             If there is an adverse impact on demand, we believe this impact will
                             occur at the low-end of the market where Dell does not have a presence.

                             Michael Dell and Tom Meredith also remain optimistic about technology
                             drivers during the fourth quarter, such as Pentium III-based notebooks
                             and 8X server configurations. Management reiterated its belief that Y2K
                             is not and will not have a significant impact on the company's ability to
                             achieve prior expectations. While there may be a slowing in demand from
                             some of Dell's large accounts in vertical markets such as Banking and
                             Securities, we believe that Dell's rapid diversification into new markets
                             like consumer, small to mid-sized business, China, services, high-end
                             servers and storage will be sufficient to offset a slowing in some
                             accounts. Michael Lambert, Senior VP of Dell's Server and Storage
                             Division, cited no impact from Y2K on the overall growth of his business
                             relative to expectations.

                             In summary, Meredith characterized this quarter's shortfall as a unique
                             set of events that are not likely to be repeated for some time. Meredith
                             expressed his belief that DRAM suppliers have raised prices to the point
                             where they risk a significant decrease in demand for their product over a
                             6-9 month period. Once DRAM configurations are adjusted downward, rambus
                             comes to market and major DRAM manufacturers complete the transition to
                             .18 micron process technology, Meredith believes that DRAM prices are
                             likely to resume their normal downward trajectory.

                             We reiterate our Buy rating on Dell shares and our $60 target. We view
                             this as a temporary situation, and one which does not speak to the
                             overall health of PC demand or to Dell's relative competitive position.
                             As we said following Dell's recent analyst meeting, we are extremely
                             comfortable with the company's strategic positioning and the status of
                             its diversification efforts. We would be aggressive buyers of Dell shares
                             below $40.
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