William:
re <<Merrrill Lynch has been "RAINING ON DELL'S PARADE SINCE 1988>>
Here's a slightly different take an Dell's performance since 1988. One that points out that $1,000 invested with them would be worth $351,000 today. Merrill Lynch(em) apparently missed out.
Shareholder Scoreboard
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Best- and Worst-Performing Companies:
Best 3-, 5- and 10-Year Performer:
Dell Computer Corp.
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Dell Computer Takes
Three Winning Spots
In an Unrivaled Feat
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By Gary McWilliams
Staff Reporter of The Wall Street Journal
It is a record unrivaled in the history of The Wall Street Journal's tally of America's best- and worst-performing companies. Dell Computer Corp. swept three of the four top places on this year's Shareholder Scoreboard, finishing first among 1,000 companies in total return to investors over the past three, five and 10 years -- a feat unmatched since the Journal began publishing the annual ranking in 1996.
Add to that a solid 10th-place finish for total return to stockholders in 1998, and the Round Rock, Texas, personal-computer maker is solidly at the top of the Scoreboard's Honor Roll. That is an exclusive list of 32 concerns that placed in the top 20% of companies evaluated over one-, three-, five- and 10-year periods through year end 1998.
Dell's investors earned much more than the privilege of boasting. A $1,000 investment in the company made at the end of 1988 would have soared to $351,356 by the end of last year -- an average compound annual total return of 79.7%.
Even over shorter periods, the rewards have been stunning, with average compound annual total returns of 152.9% over the past five years and 223.4% over three years. A $1,000 investment made at the end of 1995 would have been valued at more than $33,800 at the end of 1998; the same amount invested at the end of 1993 would have grown to more than $103,500.
The share appreciation testifies to Dell's knack for delivering the goods. A pioneer in selling custom-made PCs directly to big buyers, the company operates with a bare minimum of inventory. Since it builds a computer after an order is placed, it generates substantial free cash even as it has maintained a nearly 50% annual revenue-growth rate.
"This is a big deal," says William C. Conroy, an analyst at Sanders Morris Munday Inc. in Houston. The reason: Dell's cash machine allows it to invest in new areas, such as services, storage and workstations, even as the company repurchases shares, producing a multiplier effect on earnings per share. Indeed, EPS, adjusted for stock splits, have more than tripled during the past four years.
Part of what has kept Dell at the top of its game for so long is a management style that rewards executives for carving out businesses. Michael S. Dell, the company's 34-year-old chief executive, has surrounded himself with seasoned executives, including former presidents of other companies. Dell's hallmark is to divide a fast-growing unit, creating sharper focus on new markets. "One of the measures of success for a manager is to have a chunk of the business taken away. It's viewed as a feather in their cap," Mr. Conroy says.
Dell earned $1.46 billion, or $1.05 a diluted share, for the fiscal year ended Jan. 29, compared with net of $944 million, or 66 cents a share, in the year before. Revenue jumped 48% to $18.24 billion.
Many analysts believe gains will moderate in the face of tougher competition. Dell's shares dropped sharply this month after the company reported that its revenue gains slowed to 38% in the most recent quarter. Rivals such as Compaq Computer Corp. are now selling directly and fashioning their own custom-made PCs. What is more, the era of plummeting component prices that played so well to Dell's lean inventories may be over. A rebound in memory-chip prices is taking away some of the advantages of lean inventories.
Still, most analysts feel Dell's winning run won't end soon. "Dell is not only the low-cost producer, it is building enduring and lasting customer relationships," says Charles R. Wolf, an analyst at Warburg Dillon Read LLC. One key to Dell's corporate gains is its accumulation of sales information that helps smooth the jump into new market areas. The company's rise to No. 3 in the U.S. notebook-PC market, for instance, was aided by knowing when its desktop-PC customers were ready to replace their portables. On top of portables, it is now adding higher-profit products and services.
At the heart of Dell's new expansion lies its early embrace of the Internet. Sales from its Web site now account for nearly 20% of the company's revenue. Aiming for 50% of sales over the Web by 2000, Dell has begun selling such big-ticket products as $20,000 network installations and $5,000 computer-aided-design software as a checkoff item associated with its computers. Until now, such products required big and expensive field sales and support crews.
Dell believes it can shake up the economics of these businesses by using its Internet site to take on the work typically done by computer resellers. It can act as a reseller itself, pulling more revenues to its own business, by creating product and service packages guaranteed by Dell to work together. "Because Dell has these relationships, we'll be adding products and services through partners, or ourselves," says Richard Owen, vice president of Dell Online.
Warburg's Mr. Wolf, who had called the company's shares overvalued, recently began recommending Dell again, despite its lofty price-to-earnings ratio that he conceded "gives me a nosebleed." But Mr. Wolf believes the PC maker's expansion can boost sales this year by 45%, only moderately less than last year's increase. At that growth rate, he says, investors probably will continue to reward Dell with a P/E ratio that is more than twice the market's average.
Already this year, Dell shares have gained about 14%, rising as high as $110 apiece earlier this month. According to data compiled for the Scoreboard, the company's $93.12 billion market capitalization at the end of 1998 was second in the computer industry only to International Business Machines Corp.'s $170.15 billion.
Most brokerage houses rank the company a buy because of continued expansion of its direct selling. Using cash generated by its PC business, Dell has financed an aggressive international and product expansion. This year, it begins making computers in Brazil for the Latin American market, after having set up production in China only two years ago. So, too, it has pursued new markets in portable PCs, server computers, networking products, services and workstations.
Where Dell once was viewed as largely a mail-order PC company, its attention to big corporate buyers and Internet sales has made it a standout among corporate buyers as well as investors. Mr. Wolf, for one, believes Dell no longer must underprice rival machines by 15% to win corporate contracts. A side benefit of its recognition as an electronic-commerce pioneer, he says, is that "Dell's brand equity has gone up so much, it can compete with IBM, Compaq and Hewlett-Packard in the corporate market" at equivalent prices.
Regards,
Greg
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