Hi Kemble! Dell thinking "out of the box" and becoming an "out of the box" company is a strong and necessary move for Dell! Hope Charlie Wolf is just crying wolf...we already have bears, so we don't need the wolf. This article is from Smart Money. :)Leigh
"Looking at growth expectations for the global PC market, one wonders how Wolf reached his assumptions. According to estimates from market research firm IDC, worldwide PC sales will increase 17.6% this year, from 112.7 million units in 1999 to 132.6 million in 2000. In the unlikely event that PC prices were to stay level and Dell's 32% growth were to come entirely from its PC line, the 32% growth would mean an additional 3.8 million PCs sold in 2000 (IDC figures it sold 11.9 million last year). If IDC's numbers are correct, Dell's growth would account for about 19.1% of industry growth - a far cry from the 55% that Wolf suggests."
You're also entering at a point where DELL is coming out of box...Ad campaigns to follow
smartmoney.com
February 11, 2000 3:41 PM
Dell Lives Down to Warning
By Ian Mount
2/11/2000 4:28PM ET
IT'S ONE THING to catch a cold - here today, gone tomorrow. It's another thing entirely to discover you have some withering long-term disease. Since Tuesday, investors in Dell Computer (DELL) have been wondering which diagnosis they're dealing with. For most of Thursday, investors sided with the more optimistic view, driving the stock up 9% by the close. But after Dell released fourth-quarter results that matched diminished expectations, investors took profits in after-hours trading, then pushed shares of Dell more than 4% lower today in a down market.
Dell itself has been pushing the cold theory since Jan. 26 when it announced that it would fall short of revenue and earnings estimates for its fiscal fourth quarter, which ended Jan. 28. At the time, it said a Y2K sales slowdown, combined with a scarcity of chips and other PC components, would cut the direct PC maker's revenue, earnings, and margins. In this afternoon's announcement, it was true to its word, posting revenues of $6.8 billion and earnings of 15 cents (not including a one cent-per-share gain on investments). Its net margin for the year came in at 7.4%, down from 8.0% the year before and in line with the warning.
According to the company earnings warning, it had expected to post revenues of $6.7 billion, about $800 million short of previous revenue expectations because of the Y2K and component issues. The Street had predicted earnings of 21 cents a share before the warning.
But a second, and far more troubling scenario, was laid out on Tuesday by Warburg Dillon Read analyst Charlie Wolf, and it had to do with long-term growth rates. In the warning, the company also cut its revenue growth expectations, from around 40% to a figure in the low 30s, which many analysts on the Street touted as a more realistic expectation. Wolf, however, disagreed. He downgraded the stock on concerns that Dell couldn't live up to Wall Street's reduced growth expectations of about 32%. In a note titled, "When Big is Bad," Wolf said that Dell is getting so big - both in terms of size and market share - that the market's expectations of 32% annual growth would mean that it has to capture 55% of the PC industry's growth, which is "not a layup," especially considering the reinvigoration of Compaq (CPQ) and other competitive pressures.
In an unsurprising turn of events, on Thursday's upbeat conference call company management maintained that the worst was over and that such doomsday scenarios were unwarranted. Michael Dell and CFO Thomas Meredith used their time on the call to put a positive spin on the company's non-PC growth, especially pointing to increased sales of servers, services, and Internet infrastructure products. Dell said that early signs of strong Windows 2000 sales would mean rapid adoption of the product later in the year. This would directly benefit Dell, which sells the servers and PCs necessary to run it. And Meredith defied Wolf's predictions and stood by the low-30s growth estimates. If Wolf is to be vindicated, it seems that he will have to wait for some time.
Indeed, Wolf was alone in his dire view of the company's long-term prospects - or at least one of the few to express it so dramatically. (Though two more brokerages -- SG Cowen and Deutsche Banc Alex. Brown - downgraded the stock on Jan. 27, they only went to Buy, not to Hold, which of course means "Sell.") On the other side, analysts from Chase Hambrecht & Quist, Merrill Lynch, Robertson Stephens and U.S. Bancorp Piper Jaffray all upgraded the stock after the earnings warning, citing what looked like a bargain price for the stock (it fell 9.3% on the day following its earnings warning).
"[Wolf's] downgrade earlier this week probably set the near term low in the stock," says Dan Niles, a Wall Street Journal All-Star at Robertson Stephens, who predicted the warning two days before it happened. "From my perspective, the right time to be selling was back then [before the announcement], not now. We put out our note.and said, 'When they preannounce and have to reset expectations, we'll upgrade the stock.' And we did."
Looking at growth expectations for the global PC market, one wonders how Wolf reached his assumptions. According to estimates from market research firm IDC, worldwide PC sales will increase 17.6% this year, from 112.7 million units in 1999 to 132.6 million in 2000. In the unlikely event that PC prices were to stay level and Dell's 32% growth were to come entirely from its PC line, the 32% growth would mean an additional 3.8 million PCs sold in 2000 (IDC figures it sold 11.9 million last year). If IDC's numbers are correct, Dell's growth would account for about 19.1% of industry growth ? a far cry from the 55% that Wolf suggests.
Analyst reaction on Friday was philosophical. Most analysts kept their ratings steady, though several fiddled with their earnings estimates. ING Barings analyst Robert Cihra upped his estimates for the 2001 fiscal year by one penny, to 90 cents, while maintaining a Buy rating. Robertson Stephens' Niles raised his 2001 estimate from 85 cents to 87 cents and his 2002 estimate from $1.15 to $1.17 while keeping his own Buy rating. Analysts at Merrill Lynch and J.P. Morgan also retained their Buy ratings, while SoundView Technology Group broke from the pack and upgraded the stock to a Strong Buy while raising 2001 earnings estimates from 97 cents to $1.01 per share. Warburg's Wolf remained steadfast at a Hold.
Perhaps ING's Cihra encapsulated the mood on the Street best with the title to his Friday morning note: "An Anticlimactic Close to Fiscal 2000." |
