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

To: Jim Patterson who wrote (55554)	7/31/1998 7:03:00 PM
From: Bilow	Respond to of 176387

Hi Jim Patterson; About that DELL debt... (I know you wanted to have the last word - sorry.) Dell's earnings rate (i.e. E/P) is so small (i.e. the stock price is so high relative to earnings) that borrowing money to buy stock cuts into their (immediate) per share earnings. My guess is that this was a management mistake. It would be a good idea only if Dell could grow enough to make its earnings per share larger than the interest payment on the debt required to purchase that share. This will be a long, long time in the future, if it ever happens at all. Microsoft has been a lot more careful. Both companies have experienced excellent growth, and trade at high P/Es. But note that MSFT's CFO knows his stock is too high priced, and they tell the analysts as much. This is the sign of a careful, conservative company. Microsoft has monopoly status as the sole provider of commercial operating systems for PCs. (Okay almost..) And is also becoming the standard provider for office software. It is my guess that MSFT will still be the major player in this market for as long as IBM was once the major player in the office equipment (i.e. typewriter &c.) business. MSFT has many decades of good business ahead of it, maybe 30 or 40 years. But Dell is an unprotected price competitor, and has had and will have its ups and downs along with the other box makers. So I don't see why it should carry a high P/E, its margins are a lot harder to predict, as is its share of its markets. -- Carl

To: Jim Patterson who wrote (55554)	7/31/1998 11:59:00 PM
From: jim kelley	Respond to of 176387

JP This what your lugubrious assessment of DELL should have said: From the quarterly report, and this is from memory, They raised $554 Million. They bought back $324 Million in stock. The debt was done so they could expand. Either way you look at it, If they had not bought the stock back they would have only needed half of the Debt offering. But, If they had not bought stock back for the last 2 quarters, then they would not have needed any of the debt to expand. So, The way I see it, Dell issued the Debt because they want to generate more cash flow to buy back stock and expand earnings at a faster pace. Mikey wants his cake to grow faster so that the EPS growth rate is sustained and increased. Now they have to pay relatively low interest on stock that they bought back and the money spent for expansion. With a ROI of 221% they can afford to pay 7% interest. I view this as productive use of capital. Let's draw this to a close. (Especially since I have the last word at this point:) We disagree on how to view the situation of DELL and their use of their debt offering. All kinds of wonderful comments can be made on how it will help them expand and what a great mgt. move it was. The bulls view. I think it was a great move by a mgt. team that does not want hard times to hit their company. If hard times hit, be it in 1998 or 2008, this debt offering increases their cash resources for the future needs. Now I know JP that you think that DELL should pay cash for everything. But then the companies growth rate would not be a good as it is going to be. Jim