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.

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

To: Merritt who wrote (49020)	2/26/1999 12:18:00 AM
From: Stefan	Read Replies (3) \| Respond to of 132070

Nothing can compound at 50% a year forever, not even mighty Dell. Growing pains By Daniel Fisher DELL COMPUTER CORP. turned in another stellar performance in its Jan. 29 quarter, with worldwide revenue rising 38% from the previous year, to $5.2 billion. But not stellar enough. Anticipating the results, investors marked down the value of the company on Feb. 12 by 12%, to a mere $123 billion. They are used to better numbers than that. During this decade Dell has been compounding its revenue at a 55% annual rate. A mere 38% growth would suggest a turning point. The great growth engine may be losing steam. It was a good ride while it lasted. Dell's stock is up 17,000% from a little over eight years ago. The shares are now going for 60 times the $1.47 consensus estimate for earnings in the year ending Jan. 1999. But good rides do not last forever. Look behind the numbers: In the fourth quarter of calendar 1998, Dell's sequential growth, or the percentage increase in unit sales from the third quarter, was 12.6%, according to market-research firm International Data Corp. That's well below the industry's 23% sequential gain and the 30% increase IDC lists for Compaq Computer. Does not compute Michael Dell watched his company's growth rate slow last quarter as Christmas sales of cheaper PCs boomed. E: estimate. Source: International Data Corp. Sequential growth in the U.S. market, meanwhile, was a very un-Dell-like 2.6%. That laggard performance in a market accounting for 60% of Dell's sales led the Round Rock, Tex. company's worldwide market share to decline for the first time in years, to 8.3% from 9.1%. Only strong growth outside the U.S. salvaged the quarter. Dell fans pooh-pooh the IDC numbers, saying Compaq and other personal computer makers benefited from strong Christmas sales of sub-$1,000 PCs, a market Dell eschews. Nobody looks at sequential numbers anyway, they argue; it's the year-over-year gains that matter. Fair enough—as long as Dell can keep selling higher-priced boxes. And the signs there are troubling. Dell's sales of servers, for example, the building blocks of corporate computer networks, rose just 9% between the September and December 1998 quarters, compared with 32% sequential growth for the industry as a whole. Not many servers end up under Christmas trees. Dell has some room to grow in the market it has targeted, feature-rich PCs sold to business customers and sophisticated consumers. Dell's average selling price in its third fiscal quarter was $2,400, several hundred dollars above the industry average. But even business customers are waking up to the fact that $1,000 buys a lot of PC these days. So far Dell has scored with a direct sales formula that both cuts out dealer markups and enables Dell to turn its inventory four times faster than Compaq. Inventory hurts not just because it has to be financed, but because it erodes in value as component prices decline. Ashok Kumar, an analyst at Piper Jaffray Inc., still says Dell is a buy, but he doesn't say it with the same enthusiasm he used to. At about three times the price/earnings ratio of Compaq or IBM, Kumar says, Dell stock is vulnerable. If the P/E fell to 30 times forward earnings—Dell's multiple of just 16 months ago—the price would drop 50%, to $44. "Portfolio managers are in a quandary—if they take their money out of Dell, where the hell do they put it?" Kumar muses. "But as soon as a Fidelity Investments decides that the growth is slowing and starts to sell, watch out." this is from Forbs page forbes.com