Conference call notes: (transcribed from the phone replay by me; any errors are mine).
Tom Meredith:
18th consecutive Q of record revenues
#1 in profitability #1 in unit growth #1 in asset management
3 times as fast as nearest competitor
2:1 split, 6th in 6 years
4.3 billion rev. up 54%
6 times industry
50 cents, up 72%
217% ROIC. best in industry, more than 5 times nearest competitor
641 million cash flow from operations, 2.6 billion cash
11 million shares bought in quarter
#2 in worldwide unit marketshare; tied for #1 in US
rev up 10% sequentially.
All segments grew more than 45%
Education segment grew 60%
Enterprise segment 48% vs Q2 98
Number of projects bid on increased significantly
European rev up 73% vs Q2 98
5 countries grew more than 100%
Marketshare in Europe 8.9%, #2 in Europe, ahead of IBM
34% in Asia. Stark contrast to overall industry which declined 9%
Shipping direct from Xiamen in China
Enterprise rev grew 140%, 20% sequentially
Servers: Powervault, first Xeon 4-way server. Gained 7% marketshare
#2 in US, #4 worldwide
Workstations: #2 worldwide
Notebook: 84% rev growth; grew more than 7 times nearest competitor.
#3 in US, #4 in world for notebooks
Desktop; 42% 11% sequentially
#1 in US, #2 worldwide of desktop PCs.
100% transition to Pentium II
Pentium II approaching 10% of industry installed base
Component cost declines, beginnign to moderate. More stable ASPs likely
$2500 +- 2/300
Unit shipments up 74%, 11% sequentially
Gross margins 22.7%
Operating expenses 11.6%
2900 new hires in Q2
Inventory 8 days of sales, flat with Q1
Accounts receivable not happy. Still cash conversion cycle -7 days
Forward looking statements disclaimer
Demand outlook: overall indsutry demand very healthy.
Hardware and software transitions: strogn second half
Double digit growth in both Q
3Q benefits from federal sector surge
4Q business and consumer surge
Manufacturing effeciency push
Continued improvements in notebooks
Product mix
Negatives: new and emerging markets. China.
rapid marketshare gains, not margins, expanding manufacturing capacity.
Additional shifts, may add costs. Cost reductions passed on to customers.
Slightly weighted to negative side during growth
Net margins record 8%.
Not surprised if we back off on this a bit.
Internet: pure extension of direct model. 2 million visitors per week.
5000 premier pages for customers. 6 million daily. 2 billion annually.
Webtalk site: 50,000 registered users, 10 million hits, customer service
S/C to vendors, lowers overall distribution costs
Transition to continuous manufacturing. in US already installed.
More reliable and better quality products
Awards from PC magazine etc.
People: key limit to growth; hiring aggressively
Q & A
Morgan Stanley: Linearity
TM: Order flow and inventory management
S C Cowan Securities: infrastructure, hiring nix
TM: Across the board hiring, different levels, investments in China... large
number of people, compared to initial revenue. Latin America, adding headcount.
Revenue per employee not as high as rest of company. Storage suite of products
same story. Revenues won't appear until 3Q or 4Q for investments made in 2Q.
Bear Stearns: indirect vendors bringing down inventories;
component availbility/pricing concerns
TM: no change in 2Q performance, competitors unless they eliminate resellers,
will have hard time truly competing with DELL. DELL is perhaps moving forward
faster than them.
Component availability: some potential for prices firming up. Shortages: not
a whole lot. Spot shortages on newer products, but nothing too severe.
Ashok Kumar, Piper jaffries: Mix within desktops/notebooks/servers
TM: Server mix: flat with 1Q 34:1, vs 15;1 with CPQ, so room to grow.
Gross margins: in entirety, not individual products. Notebook margins higher
than desktop. 8% margin record, 22.7% highest in 6 years, despite tumult.
MD: Would rather sell more notebooks than desktops since margins higher
however lowering prices of notebooks for growth.
Q: networking strategy
TM: Broadband communications area. DSL and other high speed communicatiosn to
whole market. DSL enabled Dimensions
Nationsbank Montgomery: ASP outlook
TM: 2500 +- 2/300, around 2400 currently, comfortable with level. Driving
towards high end, prefer notebooks to desktops. OTOH lowering price for
notebooks for growth, will be pursued. However components continued to fall
1% a week, twice average figures of 0.5%. ASPs not going to be significantly
different in Oct Q.
Edward Jones (?): Trends in July, seasonal patterns? Windows 98?
TM: Win 98 acceptance strong, Consumer segment growign strongly, advertising
in local and national newspapers, TV, back to school campaigns, over
Western Europe, Asia, etc. 128M RAM, 11G hard drive, 19" monitor, getting
more popular. Flat panels not as strong yet
CS First Boston: other revenue opportunities for internet traffic
geographic momentum throughout industry
MD: Customers don't want ads/promotions of other products; privacy policy;
not tried to expand into other opportunities. Concern: broaden online
support options. Industry demand: Europe very strong, 73% growth. Americas
50%. still strong, growth accelerated as a multiple of market.
Alliance Capital: why haven;t you sold any puts in last 6 months
MD: 11 million shares repurchased, raising it to 170 million. Specific tactic;
DELL not chosen to sell puts.
? : Linearity; spot shortages. Y2K spending?
TM: INTC components: things were on track throughout.
Y2K: if 30% of PCs in installed base replaced every year, significant
opportunity, acceleration in demand, making sure capacity available if demand
materializes. Hard to know that customers are buying due to Y2K.
Todd Baker, Hambrecht & Quist: Portals/service providers opportunity
Asian slump: when will it be over?
TM: Consumer space opportunities; encourage to stay tuned to DELL for
upcoming announcements.
Healthy consulption for PCs in Asia, due to low penetration rates, even in
economically troubled countries.
David Wu, ABN Amro: Product mix, component costs
TM: Need to drive upto 30% of mix from server/enterprise. Also notebooks to
30%, over time. 40% desktops. More competitive with indirect players when
DELL gets there, so sooner the better.
MD: DELL has lowered gross margins to ensure growth in past, so gross margins
could go down. |
