Se¤or BBG de Mendoza, hola! :)
Another perspective on Dell's earnings from the Fool that wasn't posted yet, for your perusal. H. Greenberg might be milking his short until the 20s or until October, whichever comes first. Bill "Flick of the Bick" Enstein is a genius when it comes to shorting Dell.
Well, I think you are a good dancer. You can dance the tango Argentina just like the locals do. The secret is to execute the dip before your partner locks her knees. With Dell, you click the mouse after the dip. >g<
Respetos y buena suerte.
Mick $$$
biz.yahoo.com
MotleyFool.com - Fool News
A Closer Look at Dell's First Quarter
By Richard McCaffery
Monday, May 15, 2000
Shares of direct sales computer company Dell (Nasdaq: DELL - news) jumped 11% Friday to close at $49 7/8 after the company said first quarter net income grew 21% to $525 million, or $0.19 per diluted share including a penny gain from the sale of investments.
Today, the shares gave back a little ground, falling about 2% in early trading.
There's been quite a dust-up recently about operating income and net income, especially when it comes to accounting for gains from non-operating activities such as sales of investments. The bottom line on this, of course, is that non-operating activities shouldn't be counted as core operating income. A penny of Dell's EPS last quarter came from the sale of investments, and it would have made life easier if Dell had broken it out in the text of the press release in addition to mentioning it on the conference call. Nevertheless, its report of $0.19 includes one penny of non-core income.
There's not much else to say about it. Why? For long-term investors it's generally not worth sweating over pennies on quarterly reports. Analyst estimates are just that -- estimates. That doesn't mean earnings don't matter or that a company shouldn't get its feet held to the fire. It's just that it's more telling to get a feel for what kind of cash a company's generating, how well it's managing assets, and what it's doing to steer around the next bend.
There were a couple items in the company's Q1 report worth looking at. Operating expenses soared 47% to $867 million year over year. This merits a once-over since it's an extra $277 million Dell spent on operations for the quarter. After taxes this works out to about $0.08 per share. Total operating expenses stood at 11.9% for the quarter, up from 10.7% a year ago.
Since investors need to understand actual companies, not just stacks of annual reports, it's important to know the business reasons behind the change. First, sales, general, and administrative expenses (a major component of operating expenses) jumped 47.6% to $750 million, up from $508 million a year ago. According to a Dell spokesman, the company opted to boost spending in certain categories as it refocuses on higher end servers, storage products, and Internet related services. For example, the company spent money reorganizing its sales teams around new customer groups such as Internet service providers, application service providers, and the .com companies.
In the short term, this requires money for training, new product shipment costs, etc., but that's part of what it takes for the company to ensure future growth. It would have been a lot worse, I think, if Dell cheated spending to shore up earnings, an indication of playing to Wall Street rather than managing the business. "We don't have to run operating expenses to 11.9% of revenues," the spokesman said. "But because of the efficiency of the business model we can if we need to."
Second, research and development (the other major component of operating expenses) jumped 43.2%, or $35 million, to $117 million in Q1. This must be put in perspective. If you annualize Q1 R&D and look at it as a percentage of estimated net income this year, it looks like Dell's on track to spend about 20% of net income on R&D, down from 22% last year. Of course, this is just a very rough estimate, and R&D spending will probably increase as the company moves into higher margin computer products and services, and places bigger bets on venture initiatives.
The other item that stood out was cash flow from operations, which declined almost 30% to $760 million year over year. It's worth paying close attention to cash from operations, especially for a company like Dell that derives so much operating flexibility from the efficiency of its asset management.
A big chunk of the Q1 decline -- around $250 million -- is the result of declining accounts payable and the effect it had on the company's cash conversion cycle, which declined from negative 18 days in Q4 2000 to negative 14 days in Q1 2001. (A portion also had to do with tax benefits the company received from employee stock options. Since this isn't really part of the company's operating working capital it's not really a big deal.)
Dell's spokesman said a timing difference forced the slide in payables and the cash conversion cycle, not a fundamental change in the way it pays creditors. Indeed, if the company's typical seasonal trend over the last two years continues, investors can expect payables to rise throughout the year. This account typically hits a low point in Q1 and a high point in Q3. It's worth tracking but doesn't at this point look like a red flag.
On the whole, Dell's quarter looked pretty solid despite having to reduce Q1 estimates in January and scoring lower in some of its asset management categories. It's efforts to boost spending in the right areas makes sense, and in my opinion, the real story is progress in the server and storage equipment market.
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