Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Ibexx who wrote (79631)	11/13/1998 9:02:00 AM
From: Gary Wisdom	Read Replies (2) \| Respond to of 176387

H&Q lowered Dell to a hold this morning, based on valuation. From Schwab site: ** Hambrecht & Quist Hambrecht & Quist Hambrecht & Quist ** Company: Dell ComputerPrice: 69Recommendation: HOLDNotes: f Firm: Hambrecht & QuistDepartment: TechnologyIndustry: PC HardwareDate: 11/13/98 ESTIMATES Q1 Q2 Q3 Q4 FY '99 EPS 0.22A 0.25A 0.28A 0.32 1.06 '99 REV 3920A 4331A 4818A 5800 18569 '00 EPS 0.33 0.35 0.38 0.42 1.48 '00 REV 5700 6150 6650 7500 26000 REV EST IN MILLIONS DELL: STRONG FQ3 RESULTS; HOWEVER, LOWER TO HOLD BASED ON VALUATION Summary: Dell Computer reported FQ3 results of $0.28 in EPS on $4.82 billion in revenues, above our EPS forecast of $0.27 but slightly below our revenue projection of $4.85 billion. Dell once again enjoyed strong y-y revenue growth of 51%, its eighth straight quarter of 50%+ annual revenue growth. Units came in at 2.0 million for the quarter, up 66% year-over-year. Healthy Demand Across the Board: Dell once again enjoyed robust demand across all its major product segments and geographic markets, driven in particular by strong growth in its enterprise (up 104% y-y) and notebook (up 93% y-y) segments. In fact, both enterprise (14%) and notebooks (22%) now comprise 36% of total revenues, up from 28% of total sales last year. In terms of geography, the company continues to experience explosive growth across all regions. Revenues in the Americas grew 46% y-y, in Europe up 68% and in Japan up 49%. In particular, the growth in Europe reflected gains of almost four times the industry average, while the 49% growth in Japan dramatically exceeded the industry average of 2% y-y growth. These strong revenue and share gains are driven by its outstanding execution, superior direct model and broadening product portfolio. Going forward, we believe the demand trends remain very healthy for Dell, as we expect the company to continue to increase its market share in all product and geographic segments. ASPs Stay Flat; Margin Outlook Remains Healthy: Despite continuing pricing pressures in the desktop market, ASPs remained flat sequentially at $2,400. The flat ASPs reflected a favorable mix shift towards higher-priced, higher margin enterprise and notebook products and a gradual easing of pricing declines in the desktop PC industry. Gross margins remained healthy at 22.5% (down slightly from 22.7% in FQ2), while operating margins stayed flat at a record level of 11.4%. Going forward, we expect gross margins to hold relatively steady into 1999 driven by 1) ongoing component cost reductions, 2) a continuing mix shift towards higher-margin products, 3) increased internal manufacturing efficiencies (resulting from the company's Continuous Flow Model) and 4) cost benefits resulting from its growing Internet business. Internet Business Continues to Grow Rapidly: Dell continues to witness explosive growth in its web-based business, exceeding an average of $10 million a day in sales (or about 20% of total sales). Whereas the original focus had been the consumer market, the company has witnessed a dramatic surge in web-based corporate sales. Dell's increasing on-line customer support capability helps to improve customer service, which we believe will help to further reduce costs as online customer support is practically a zero-cost transaction. Going forward, we believe growth in Dell's internet business will only strengthen its already stellar business model. As the internet becomes a bigger percentage of Dell's overall business, this should result in lower costs for the company in the long-term, enhancing the cost advantages of its direct sales model. The company has a stated goal of eventually generating 50% of sales online. Outlook and Recommendation: We have slightly raised our FY2000 estimate to $1.48 from $1.45. With that said, we are lowering our short-term rating from a Buy to a Hold, based purely on valuation. Having reached our 6-month target price of $70 recently, we believe there are few catalysts that can drive significant share price appreciation in the near-term given the CY99 P/E of nearly 50x. Importantly, we reiterate that the company's long-term fundamentals remain as strong as ever. The prospects facing Dell over the next several years remain extremely positive, given the enormous growth opportunities within the enterprise and notebook segments, geographical markets such as China and Latin America and growth in its Internet business. Moreover, despite the ratings change, we suspect upside potential to our current estimates still exist as we believe Dell will enjoy robust demand trends for the foreseeable future due to the inherent benefits of its direct sales model, as well as its growing Internet business. In short, Dell remains one of the best franchises in the technology universe and we expect the company to continue to execute significantly ahead of the industry standard. As a result, we will look for an opportunity to re-adjust our rating of the stock over the coming months. 1998 Copyright Hambrecht & Quist LLC. All rights reserved. The information contained herein is based on sources believed to be reliable but is neither all-inclusive nor guaranteed by our firm. Opinions reflect our judgment at this time and are subject to change. We do not undertake to advise you of changes in our opinion or information. In the course of our regular business, we may be long or short in the securities mentioned and may make purchases and/or sales of them from time to time in the open market, as a market maker, or otherwise. In addition, we may perform or seek to perform investment banking services for the issuers of these securities. Most of the companies we follow are emerging and mid-size growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. For these and other reasons, the investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. This report is not a recommendation or a solicitation that any particular investor should purchase or sell any particular security in any amount, or at all.