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To: Robert Douglas who wrote (375)	9/25/1998 7:54:00 PM
From: Terence Mitchell	Respond to of 4691

Hi Robert, Extract from reply No 327 posted by jhg ...Well, how about 200 shares of Dell stock for everyone in the arena? All 14,000 Dell employees in the United States, too?... which comes to 2,800,000 shares regards, Terence Mitchell

To: Robert Douglas who wrote (375)	9/26/1998 1:38:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 4691

Bob Douglas makes a very strong argument on margins, which I could add to, but it stands on its own. He is wrong on shares outstanding. Not in the result, but in the reasoning (so in the way that counts, he's right). I did some work on Dell today, along with a number of other tech companies which buy back shares just to keep up with option dilution. Dell is a free cash flow machine - that is where Bob is wrong - the business model requires zero, even negative, working capital and has no factories. It requires no capital to grow. That is the genius of the model. BUT...the company treats options as if they are free money, and that is what is going to kill you as shareholders. A post from one of Dell's bulls a couple days ago stated proudly how Michael Dell gave every employee of the company 200 options each. Do you understand that that is money out of your pocket as a shareholder? Do you have the slightest notion of what that act of generosity cost? It didn't sound like it. Oh, but Dell will buy back enough shares with its free cash flow to hold the shares outstanding constant despite all these options giving birth to new shares. So far it has worked, because they were buying shares a year ago at $10 a share. At 80x earnings, the economics of a share buyback change. If you don't understand that point financially, you should think hard about it. If you want it laid out point by point, I will. Microsoft stopped buying shares a few quarters ago because even the company's own CFO considers the shares overvalued. God bless him, he's doing his job of maximizing shareholder value by NOT buying shares. But even when they were buying back stock, the share count crept up 10% since 1992. When people see these options to employees making them millionaires, and making the executives billionaires, they think that money is coming out of nowhere. To a point, options motivate employees, but we are so far beyond that point that it has become pure greed. At that level, it is theft from shareholders. And if you would argue with me on that, then start with convincing me you understand what Dell's option grants are costing you as shareholders. The number is in the last annual report. If you done that calculation, then we have nothing to talk about - you have your head in the sand. I will give you a hint at the punch line. Dell does not trade at 80x trailing earnings. It trades at over 100x trailing real earnings adjusted for option grants.