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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (34335)	3/13/1998 10:04:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 176387

DEC and the 'FUD' Factor-competitors are snatching the server biz. Skeeter: Heard on the CPQ thread, wonder if DELL picked up some server biz? Message 3706580

To: Skeeter Bug who wrote (34335)	3/14/1998 1:23:00 AM
From: Bilow	Read Replies (1) \| Respond to of 176387

Hi Skeeter Bug; Actually I don't know that DELL is going to buy DGN, but it is pretty clear that they're thinking about buying someone. Hey, I was born in Texas, and I know how bad it must feel to have CPQ bigger than you in the same state. (Note that only Texas could have two such great box makers in it.) Mr. Dell sees CPQ expanding by acquisition, how long do you think he's going to let that go on? Not a chance. Next time CPQ makes a tender offer, DELL will show them they can play too. Plus I can't think of anything else they could do with it. First of all, note that they haven't borrowed anything yet. All they've done is set up a plan. But even setting up a plan isn't free, it takes money and time. So I think they have a reason. But why borrow a piddling $500MM? They spend a similar amount buying their stock back regularly. If they had thought of it in advance, they could simply have put off a stock purchase and banked it. In fact, it is a small amount relative to the cash they have in the bank. No, the only reason for getting that loan is to prepare for the necessity of suddenly coming up with a wad of extra cash, and that spells acquisition. If they were thinking of building new facilities or whatever, they would have planned it out in advance and would not have spent that money buying shares back. One possibility is that the economic analysts at DELL are predicting a stock market crash for this year or the next, and they want to have the cash on hand so that they could buy out one of their weak sisters in the ensuing SEA induced panic selling. Note that institutional investors with access to economic models and estimates are still running scared. It's the small investors who are buying the dips. I believe the small investors will learn to sell the rallies, but will only start after unemployment begins to rise. I think the financial geniuses are figuring on something similar, and are preparing for the stock market wreck later. The most benign thing I can think of is that they are preparing to buy their stock back in mass, but only after it drops drastically. They wouldn't buy their stock back at the current high price, cause it is too high (in terms of P/B) for them to afford more than a couple percent of the shares. So they could be expecting DELL to drop drastically in price, but whatever they are doing, they sure aren't telling me. I find the faith that the DELLites have in the concept that Michael Dell has their best interests at heart similar to the way the American people feel about Bill Clinton. The next thing I expect to hear is that M. Dell can feel their pain, but only after the stock drops a lot more. All in all, the thread has the feel of the TXN thread when it topped last fall. Of course DELL is a much better company than TXN, except that TXN has patents to protect its intellectual capital and DELL doesn't. Another thing people are failing to notice is that while DELL has a better business model for a period of rapidly falling computer part prices, it is also true that rapidly falling computer prices are bad for all the makers. And when things stabilize, as they eventually will, the other makers with their better relationships with parts manufacturers will be able to build machines cheaper than DELL again. In other words, having more inventory is an advantage in that it allows you to sell more computers given the same amount of factory capacity, but it is a disadvantage if the price of your inventory drops. Parts makers always give their best deals to their stable customers, and those are the ones who can predict their purchases in advance. DELL is not one of these, CPQ is. This is an advantage to CPQ under normal conditions, but a disadvantage under the condition of rapidly dropping prices. I expect that normal conditions will return later this year, but the ASP of computers will never go above $2000 (after inflation) again, and that is the death knell for the growth prospects of all box makers. So what happens? Either the price of computers continues to drop like a rock, in which case all the box makers are dead. Or instead it stabilizes and DELL loses its low inventory advantage. I expect both to happen. First prices drop like rocks to the point where TVs and PCs are comparably priced. Then things stabilize. At the end of the year, DELL will be running at a loss as customers will be buying extremely powerful, standardized computers for way under $1000. But all this is just my opinion. What do you think? -- Carl