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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (46967)	2/13/1999 2:59:00 PM
From: Ramsey Su	Read Replies (1) \| Respond to of 132070

MB, as far as plain valuation is concerned, I have been down on the boxmakers for a long time with DELL leading the pack. The only reason that I don't take any position in this group, other than day trading, is the potential they have in turning themselves into an internut stock over night. It is not necessary to have a sound business plan, logic, earnings or all the normal stuff. Can you imagine what will happen to DELL's price if Mickey D announces something like DELL will start competing with egghead and distribute all software. Even worse, what if they say they will start selling CDs, videos, big band music or something obscure? From an expansion standing, I see no chance that DELL is not figuring out ways to exploit the thousands of eyeballs that they have captured on the net, eyeballs who are already customers. I conclude that with so many other over priced stocks out there, why stand in the way of another potential internut driven disaster. Ramsey

To: Knighty Tin who wrote (46967)	2/13/1999 3:57:00 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

(The 5% was definitely not sequential, it was year over year. Net income of $45.9 million vs $43.6 mm last year. Eps were rounded to 61 cents vs. 57 cents, but even without the rounding, they were up a measely 7% year over year. Sequentially, net income was up less than 3%. But the exact numbers are not the point. What is a co. growing in single digits doing with a 45 times pe ratio is the point.) The point is that with volatile business outlooks, using trailing yr/yr growth rates has the same problems as simple moving averages, i.e. any sharp change appears twice, once coming and once going. The last reported sequential change was +3.4%. The next reported sequential change will be about 7.5% in April. We are half way through the current quarter and there is no indication yet of any slowdown for the early-install low level components. [Not a high cost socketed part like a CPU, ordered/cancelled JIT.] Linear has about 12,000 part types and several thousand customers and a relatively small exposure to desktop PC's as those parts have long since become commodities and mostly fallen out of Linear's 71% gross margin dynamic product mix. If, and more likely when, the overall business slowdown comes it will first impact the next quarter's forecast, not the current quarter's reported results. We are in absolute agreement on the numbers being too high, but this is a market issue and will be corrected with the market. (I don't get the contracting point. They don't have any contracts to produce products? ) In essence, no. Half of sales are into distribution, with no revenue recognition until the distributors ship. The other half are to OEM's where the contracts are effectively more commitments on the part of the customers than on Linear. The contracts would lock in volume pricing and protect Linear from an inventory build up due to the 16 week cycle time for volume orders. The key point is that Linear's parts do not represent a high percentage of the customer's parts cost, as is the case with CPU's and memory. Accordingly, the customers have less economic damage from Linear's parts when their final end user sales fall off a cliff. (A fair market valuation would put a pe ratio of 12 on this non-growth co., and I think that would take it lower than $80 or $65.) That's where our disagreement is. Within even the last few years the yr/yr growth has varied from 0 to 70% through two drastic downturns and one component buying panic. Long term, the growth rate should be 20 to 30% and the PE should be 25 to 35. The proven ability to maintain 35%+ net margins through severe downturns, combined with no debt, about 5 quarters' revenue worth of cash and no write-offs at all justifies a premium PE. But not 40+. -g- Regards, Don