txlaw

If they are acquiring these companies in the non-pc area and are able to grow the acquired products through the distribution franchise, why is it that the % of their pc revenues almost constant? Shouldn't the non-pc revenues be growing quickly? I wouldn't expect any revenues to be growing quickly in this macro environment, save for cloud infrastructure sales, which are growing at a decent clip (you have to adjust storage revenue declines for wind down of the EMC lines), but certainly not as rapidly as I would want given the secular trends there. Service revenues and backlog is growing decently, but again, not near as fast as I would want, and I think that's due to the macro environment. But we'll see if the new HP guy can accelerate growth in services. I think that IT spend is clearly being held back due to uncertainty in the global economy. Over the long run, I expect "New DELL" revenue to grow faster than IT spend. While I agree about he macro environment, shouldn't that effect the PC/client business too? In other words, shouldn't the non-PC business contribute more on a relative basis? The macro environment is affecting the end user computing business as well, although there is the additional headwind of the "iPad market" that DELL has to deal with. Where are you getting that the client business is contributing the same percentage of revenue as in the past? I don't think that's correct. From their 10K - If you look at 2012, 2011 and 2010 mobility + PCs contributed 54%, 55% and 56% respectively Given that Dell is acquiring non-pc companies, growing them while its PC business is facing pressure from Apple (tablets and Macs) and losing share to other PC vendors, you would expect the portion of non-pc revenues to grow quicker. Why are the numbers not showing it? You need to look at the difference in percentage of end user computing revenue starting from '08, after Michael Dell came back. In FY '08, end user computing revenue was $47.2 billion or approximately 77% of total revenue. In FY'12, end user computing was $43.4 billion or approximately 70% of total revenue. Also, you have to keep in mind that there was a refresh cycle for the client segment when Windows 7 came out, which boosted the client revenue percentage. It is best to look at the past and projected CAGR for enterprise solutions, software, and services revenue when determining what the revenue mix will look like going forward.

I don't think I've ever shared IV for any investments I've discussed, and I'm not going to do so now. In any case, I have a range of IVs that I consider based on different potential outcomes, I tend to use the lowest number in the range for MOS purposes, and I recognize that IV is a moving target. For example, with DELL, my current low IV is based off projections that owner earnings per share actually declines for the next five years, which is different from the analyst estimates. I suspect that I will have the pleasure of ratcheting my IV estimate up for DELL after a year or two. I will say that I'm viewing DELL as a going concern focused on selling productivity solutions, whereas with RIM, I'm going with break-up/run-off value. That changes the way I calculate IV.

That is fine if you don't feel you can handicap DELL. That is a legitimate reason for throwing it into the too hard pile, and there are many ways to skin a cat. Ultimately, it all depends on P/V and MOS. I would never buy a KO, for example, at a high price despite its having purportedly static cash flows. I would note that KO itself is in constant transformation. If you just view KO as a soda biz, as many used to in the past, it is/will be in decline in NA and the developing world. But they have markets abroad and they've been buying platforms for growth such as juice makers and energy drink companies. So much for KO and organic growth! Ultimately, the misconception with KO is that it is a soda company. But we all know that when we boil it down, KO is in the business of getting royalties on hydration, in whatever form. Similarly, DELL is viewed as a PC company, but that's the wrong view to have in light of what they're doing there. Another example of a wrong view would be to say that GOOG is just a search company -- it's so much more than that.

If they are acquiring these companies in the non-pc area and are able to grow the acquired products through the distribution franchise, why is it that the % of their pc revenues almost constant? Shouldn't the non-pc revenues be growing quickly? I wouldn't expect any revenues to be growing quickly in this macro environment, save for cloud infrastructure sales, which are growing at a decent clip (you have to adjust storage revenue declines for wind down of the EMC lines), but certainly not as rapidly as I would want given the secular trends there. Service revenues and backlog is growing decently, but again, not near as fast as I would want, and I think that's due to the macro environment. But we'll see if the new HP guy can accelerate growth in services. I think that IT spend is clearly being held back due to uncertainty in the global economy. Over the long run, I expect "New DELL" revenue to grow faster than IT spend. While I agree about he macro environment, shouldn't that effect the PC/client business too? In other words, shouldn't the non-PC business contribute more on a relative basis? The macro environment is affecting the end user computing business as well, although there is the additional headwind of the "iPad market" that DELL has to deal with. Where are you getting that the client business is contributing the same percentage of revenue as in the past? I don't think that's correct.

If they are acquiring these companies in the non-pc area and are able to grow the acquired products through the distribution franchise, why is it that the % of their pc revenues almost constant? Shouldn't the non-pc revenues be growing quickly? I wouldn't expect any revenues to be growing quickly in this macro environment, save for cloud infrastructure sales, which are growing at a decent clip (you have to adjust storage revenue declines for wind down of the EMC lines), but certainly not as rapidly as I would want given the secular trends there. Service revenues and backlog is growing decently, but again, not near as fast as I would want, and I think that's due to the macro environment. But we'll see if the new HP guy can accelerate growth in services. I think that IT spend is clearly being held back due to uncertainty in the global economy. Over the long run, I expect "New DELL" revenue to grow faster than IT spend.

See my latest post. And read a bit more about the DELL transformation. You keep referring to original business model and headwinds facing the "Core Dell" business. If you actually buy into the notion that "New Dell" will work, then you'll see that this is not a trade. If you view DELL as a trade, you're playing with fire, especially with Einhorn and Chanos on the other side of the bet.

One of the funny things about DELL is that the same debates keep occurring over and over again. Just conduct a search for DELL posts on the board and you can read through all of our jabber about the company. It is certainly true that the DELL thesis is dependent on whether management is being rational with their M&A. If you believe that DELL has done a poor job with M&A in the past, then you ought not to invest. Because that means they're not executing properly, which will be vital to their successfully transforming the company. I believe the opposite, however. I like the acquisitions they've made, and many of the acquisitions that appeared to be expensive based on backwards looking financial statement analysis were not expensive after DELL started selling product through the distribution franchise. Moreover, DELL has been hard at work building their portfolio so that they can be the best technology productivity solutions provider, especially in light of all of the change that's occurring in IT. Ultimately, DELL views itself as a productivity solutions company, not as a computing hardware or technology company, although it certainly sells computing hardware. It's all about trying to become more like IBM. (Read http://www.economist.com/node/18803123) With regards to branding, it appears that Dell Hell has left a lasting impression on many folks. But as has been pointed out before, that negative association is primarily a NA thing, and possibly Western European as well. For example, Dell has a great reputation in places like India and Brazil, which are places where there will be a need for PCs, "post-PC" devices, thin clients, cloud infrastructure hardware, software systems implementations (e.g., see work for GOME in China building an e-commerce platform), etc. Servicing businesses in India and Brazil and China will be great over the long run. I would highly encourage people to visit the DELL corporate website. There's an incredible amount of info for investors there. Read through the conference transcripts, watch some of the videos, and subscribe to the Dell Shares blog. You will really get a better sense of what exactly the company is all about. For example, read the transcript for the recent Citi conference presentation. You absolutely must focus on the qualitative aspects of the investment. DELL's being "statistically cheap" (whatever that means) is not a good reason for being invested in it. As for HP, I never believed in management or the board, and I won't invest there until I see some actual progress being made. I think their M&A has truly been atrocious. They are the anti-DELL, IMO.

Ah, but what percentage of the product revenues are PC/mobility revenues? And what percentage of income comes from PC/mobility revenues? DELL is actually doing what needs to be done in light of changes in the supply chain. This has nothing to do with a "volatility trade."

Chanos is saying that Dell has plowed billions into acquisitions to end up with the same level of earnings where it was before (which looking back is basically true) - which implies that from an earnings standpoint its high M&A spend is almost equivalent to huge hidden maintenance capex rather than growth capex as its legacy business gets less and less profitable. If it needed the same level of M&A to maintain the same results forever he might have a point. I am inclined to take the other side of that view, but it's worth thinking about. The problem is that Chanos' thesis is contradicted by the very actions of the companies he criticizes. He says that HPQ and DELL have missed the shift in the PC space. On the contrary, these companies' strategies have been to become less dependent on being resellers of Windows in a box because they understand the shift and realize that their role in the supply chain is becoming less relevant. Thus, they are trying to transform their companies into new IBMs. Chanos completely ignores this either because he doesn't understand the companies or because he just wants to present a narrative that will work for the short term price action. Chanos goes on to say that people are missing that DELL and HPQ are acquiring companies. First of all, that's not true, as pointed out above, and it's a pretty lame statement. Second of all, you cannot equate an acquisition with R&D spending. You're not just getting all of the R&D with the acquired company, you're also getting a revenue stream (which a DELL will scale up), as well as many other assets and liabilities. And then he goes on to say that these acquisitions are increasingly risky, but it seems like he's just throwing that out there to see if it will stick. Chanos' rationale is a lot like the Einhorn reason for getting out -- he basically implies that the cash being spent on M&A is being burned. In fact, I'm convinced that Einhorn got out of DELL because he saw Chanos was shorting it and, therefore, determined it would be dead money for a while. Incidentally, Chanos' terrible analysis calls into question whether the shorts actually provide a useful social function because part of the thesis for allowing shorting is that shorts are "financial detectives" who really explain why something is overvalued. It seems to me that Chanos free rides off of others analysis (Hendry, Muddy Waters, etc.) and then profits by presenting an overly simplified thesis. He's the equivalent of Tilson on the short side. If the whole point of shorting is to provide good info to the market and only the most prominent (rather than smart) shorts are getting airtime, then what's the point? I think shorts are most useful when they ferret out real financial fraud, rather than presenting compelling narratives like politicians.

Bank of America? Haha. ;D Great answer.

http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm (found off Value Investing World) Every time I hear or read the commentary of Richard Fisher, I'm very impressed. I'm really glad we have people like Ben Bernanke and Richard Fisher on the Fed. Good people.

For whatever it's worth, it was under $9 in 2009. This is quite amazing. It was when DELL was at $9 during the financial crisis when I first bought into it. And now it's getting back to that price, despite being in a much better position than it was at that time. Gotta love Mr. Market!

If Citi were to do the same sort of transaction as Santander, bolster its reserves where they need to be bolstered, and then start buying back stock with the rest of proceeds (perhaps the Fed would let them do so if they could release a couple of billion from selling off stakes in their foreign subsidiaries), that would be phenomenal. I might buy back into Citi. Plan, Santander or Citi at this point?

I have to admit, though. It's been very entertaining watching these crazy games.

Remember his thesis on Fairfax? This guy gets too much press and far too much praise. Cheers! But he called out Enron, man! Enron . . . ;D

Agreed. The Aaron Rodgers interview pretty much sums it up regarding the whole situation.

http://www.bloomberg.com/news/2012-09-25/obama-says-nfl-needs-to-get-regular-referees-back-in-games.html Okay, Obama's definitely got my vote locked down now. Packer, you gonna change your mind on who you're voting for?

Ugh, his characterization of the "bull" case on DELL is so lame. Yeah, it's all based on FCF, and nobody takes into account the acquisitions that these guys are making. ::) This makes about as much sense as his thesis that XOM is a liquidating trust.

I wonder what he meant by some of those banks have their own accounting issues. Was he referring to BAC or just banks other than JPM/C?

http://www.cnbc.com/id/15840232?video=3000117416&play=1 http://www.cnbc.com/id/15840232?video=3000118195&play=1 http://www.cnbc.com/id/15840232?video=3000118192&play=1

Not getting drawn into the original thread topic, but I find this statement intriguing. It will be interesting to see if you're right, Moore. If I made such bets, I would bet that inflation will remain fairly tame in the US (between 2 and 4%) and that oil will never reach $150, though WTI might go above $100 if tensions flare up even more in the Middle East (e.g., Israel bombing Iran).

+1 Not worth even responding. Definitely not following Munger's admonitions against falling into the ideological pit.

Check out what's opening in Waterloo and the ambitions for the new research center: http://www.bloomberg.com/news/2012-09-19/blackberry-creator-lazaridis-puts-100-million-toward-nano-plan.html Whatever you think of RIM's investment, FFH investors should be happy that Mr. Watsa and HWIC are linked into the tech community in Waterloo. Perhaps Waterloo, with the university, RIM, and this new "Bell Labs", will one day take the mantle of Canada's Silicon Valley.

Although Obama does seem to really dislike talking to the folks on the other side -- or at least, certain people on the other side who have made it their goal to make Obama a single-term president -- he will do what it takes to get the job done, IMO. And I believe he'll be much more effective in a second term. Obama's made a lot of mistakes, though. Not jumping on board Simpson-Bowles was the biggest, I think. I believe Romney has just lost the majority of independents he references in his video.

Yikes, I just saw that video. Yeah, that's not good for Romney.