goldfinger
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Posts posted by goldfinger
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DELL - I've disliked this company for years, and the stock is cheap on current earnings and cash, but I don't have much confidence in their future. They are in basically a commoditized business, and I think their margins will continue to get squeezed.
Margins are actually moving up and they are giving up the low margin part of the business progressively. That's what the market doesn't like because of the revenue part but profitability is increasing very quickly.
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Thanks for posting.
Enjoyed it.
These guys sound like some of the posters on this board.
All their holdings are items discussed + favoured by the guys here e.g. MSFT, GOOG,,HPQ, BRK
I don't think it's limited to members here. You don't need to spend much time to figure out favorable risk/reward scenario if they come within your circle of competence. Some people might not want to own these companies rigth now due to finding better risk/reward deals but these companies are very good risk/reward option going forward. I don't think GOOG is that cheap but they might make up for it with their very wide moat.
HPQ's price is completely ridiculous at this point: price to FCF at 5 to 6 max with 16B buyback program and 13B cash on the balance sheet and borrowing costs so low for HP. The market cap is 65B meaning they could increase ownership by 1/3 while we wait. With Andreesen at the board some of it may happen in short order. It has strong franchises and is actually gaining ground in networking and software/services. It already has almost all resources and technologies to offer strong cloud solutions (WebOS is part of it and the press forgets to speak about ALL the technologies that they got access to by buying Palm - storage, data center, webos => ecosystem cloud included). There are headwinds too like government spending but the PC business is more robust than what the market is discounting. Last time I went to best buys (yesterday) people were looking at laptops and HP tablets after the 100 rebate was applied! This market is a joke sometimes.
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Please do not apologize Sanjeev. I am just very happy everything is back to normal! Thanks a lot! ;)
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He may still end up be right on BAC or other financials.
It's not his fault that ppl pull money out.
He's definitely right on financials. I think he's 85% right on BAC. And yes, it's not his fault that people pull their money, but unfortunately it comes with the territory when you run a mutual fund or a fund with no lockup. Cheers!
What do you mean by 85% right Sanjeev?
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My opinion is these rating agencies are a joke.
Buffett agrees with you: >:(
http://www.foxbusiness.com/markets/2011/08/05/buffett-to-fbn-sp-downgrade-doesnt-make-sense/
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I am selling some tech like MSFT to buy BAC, MBI and AIG common (still have a sizable position in MSFT). It reminds me a bit of 2008: raising cash levels in the short term by investing in some companies that the market doesn't hate too much and that are very obviously undervalued and buying more undervalued ones. Hopefully those will prove good moves in the long run... ::)
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Well, my personal opinion is that Bruce is completely right...and that's because we've pretty much made the same bet! Grin Although we've also bet heavily on discounted technology companies. No one thinks that things will improve right now...that the hole is so deep, we'll never get out. That's exactly the time to start looking for things no one wants to touch.
I always enjoy knowing that I am on the same side of the trade(s) as you! ;D
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nice beat as expected. Stock up only 2,5%.
Good numbers. Stock down -0.79 right now though.
After hour trading is very light. Not sure it is representative of anything really!
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interesting take that msft is going head on with goog. the reality is that msft is utterly dominant in the office category and took their time to roll out something substantive and get it right. goog is barely on their radar.
In between Bing - Facebook - Yahoo, Skype + Comcast, Mango, Office 365 and other projects, I would say that Google and MSFT are in a war of many fronts!
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$6/mo/user,that's a sweet deal for MSFT vs $280 one time purchase. MSFT gets rid of piracy problem.
I don t see the average person buying into this. I could +may be wrong.
Well I must be above "average" then, as I probably will subscribe to this on my new laptop. ;D
I'm still using my old laptop, even though I bought a new one in December...simply because I've been too lazy to buy software and install it, then transfer everything over. Now I'll probably just buy Office 365 and transfer everything over directly from our office server. Cheers!
Same here. I have a new laptop and I had access to free office. Now because of legacy (people send me documents) and because of my own needs I am going to by the subscription...
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Hahahaha. Yes, there is nothing good about Xbox/Kinect. It is only winning by default since AAPL isn't in the game. HAHAHAHAHAHA!!!! That's a perfect example of the bias out there.
That's not what I said. XBOX is quite good, but SONY also dropped the ball somewhat in the same period, so the comparison between XBOX and Playstation isn't the same as Google Search and Bing, because Google isn't going the way of Sony right now. When your competitors shoot themselves in the foot, that has to be taken into account in the calculations...
XBox is where Microsoft intends to conquer the home entertainment business and more (Web TV is not being used by people who bought it). Beyond the Skype + Comcast deal, they are now talking of introducing interactive advertising in games and other programs running on XBox (and Microsoft doesn't know how to innovate)!
Kinect is the fastest selling device in history. People who own other consoles (PS3, Wii) are buying XBox. Young people learn about Microsoft through the XBox and they do not come with former generations' hatred for this company.
Kinect UI concepts are going to be made available in SDKs and subsequent versions of Windows OS. That along with the PC's natural design evolutions (tablet like, ultra thin, ultra powerful, access to all common devices, etc...) will make Windows machines super competitive especially with advanced COMM services on them.
Bing, Speech Recognition and other technologies of that type are aggregated horizontally to increase the offering.
ETC... Microsoft is competing hard these days and there will be more clarity when the current pipeline is deployed.
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Again Einhorn has not been too impressive lately. And Tilson may want to go find easier short ideas...
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I'm not sure about the microsoft making things better comment, but Bing has passed Google in search relevance in my opinion
I think making better meant: integration and milking.
Dos, Windows, Excel, Word, Outlook, IE, SQLServer, XBbox, Sharepoint and many many other products are examples of that.
One last note: Why Balmer should go.Over the past 5 years Balmer has had a habit of introducing a product and then trying to sell it to you by mentioning how much his kid loves it. First, that's lame, but more important, what evidence is there that his kid has a good track record of predicting hot selling products. When a CEO does this, especially in consumer tech, it means he is clueless.
Frankly I would stay away from that kind of thinking (even though he may be replaced tomorrow which I doubt). I know everybody says Balmer is a dumb ass, Einhorn included and by the way I heard the same about Bill Gates from lots people in the past too. I have heard Balmer talk on other occasions and it was obvious he was thinking long term in many areas of his business. For now MSFT earnings have tripled in 10 years and the strongest pipeline ever is coming to market. Lots of investments and moves will get much clearer within the next 2 to 3 years at Microsoft. Convergence possibilities are very impressive if you really thing about it.
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MSFT doing what it does best copy and make better.
Packer
BINGO!!!!!!!!!!!! ;D ;) :D
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I recently switched to bing as my search engine on all my devices. Other than maps, I find bing to be more relevant.
DW
Bingo, you are not alone! ;D
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Many of the HPQ businesses are actually in deep trouble...
Munger would you mind giving more details on where exactly those businesses are in big trouble?
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For my taste today, I would rather stick with MSFT and CSCO where you have both effective management and good businesses and prices comparable to DELL.
DELL has $2.20 per share non-GAAP forward earnings if the latest quarterly numbers are to be maintained. That's I think where DELL is much cheaper than MSFT and CSCO. Time will tell.
They are expecting 5% to 7% revenue growth with rapidly increasing operating margins for the foreseeable future. And Dell has put his money where his mouth is even though he invests most of his money in a proprietary diversified hedge fund. So I believe some of what they say.
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I'm just suggesting we try to be rational about our investee companies. When one is invested in MSFT, it's easy to fool oneself into believing that AAPL is behind in the cloud or that WinPhone is just as user friendly as iOS and Android. If you own GOOG, it's easy to fool yourself into thinking that Bing will never make inroads and that it poses no threat to Google's search engine.
Better to have an objective view of the risks and rewards of MSFT, right?
Sure totally. But for MSFT the price is cheap, the pipeline very strong and moats still exist. Moreover MSFT is attacking new markets that have already been defined by the competition and may be able to put its existing weight in the balance along with partnerships to get to critical mass (which it already has done successfully a few times). So without being overly optimistic, we are paying little for a story that is only waiting for a more realistic valuation.
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My view is that it is too simplistic to talk about moats (or a lack thereof) when we're talking about a company that has been undergoing a transformation for a while now (successfully, I might add, IMO). It makes more sense to talk about competitive advantages, threats to existing businesses, and growth prospects. We have to think about the company holistically. The same is true of an analysis of MSFT, where the moats of the cash cow businesses are shrinking but where free cash is being deployed into other businesses or into transformation of the cash cows.
The analogy to IBM is very appropriate -- Michael Dell has been gunning for IBM for a while now. Dell, which has always focused on its business customers despite having a great consumer business in the past, sells productivity to its enterprise customers. Like IBM, the goal is to help solve business problems using technology. I highly recommend reading the Economist article discussing the longevity of IBM over the last 100 years. Much of what is in that article is instructive with regards to DELL's prospects.
By far, the greatest competitive advantage DELL has is its customer relationships and distribution network. DELL directly talks to business and government in order to understand their needs and it develops solutions, whether hardware-, software- or services-oriented, for these customers. This distribution channel (which provides info on a two-way basis) is extremely valuable. It allows DELL to buy companies like Compellent at what appear to be high prices, scale up the sourcing for these acquired product lines, and then dramatically increase units sold by selling through the distribution network. All of a sudden, the price paid doesn't look so high.
It also allows DELL to sell both commodity hardware and high margin services to its customers. Case in point: "The Nuclear Regulatory Commission (NRC) has selected Dell’s wholly-owned subsidiary, Perot Systems Government Services (PSGS), a unit of Dell Services, to provide a full scope of Information Technology Outsourcing (ITO) support services as well as hardware, enterprise, and software products." See how the entire package was sold to the NRC?
The strength of this network is also increasing on a worldwide basis. Dell is the number one PC-brand in India. How quickly we in NA forget that PC penetration is nowhere near complete in emerging markets! By dealing directly with Indian business, DELL strengthens its customer relationships and prepares for a future where they can sell other things to those Indian businesses (mobile devices, cloud hardware, consulting services). Same is true in Brazil and China.
Scale is also an advantage to DELL. Being a big seller of commodity hardware means that it has created a supply chain with manufacturers all over the world that cannot be duplicated easily and that allows it to be a low-cost provider of hardware (though not necessarily the lowest-cost provider). The low-cost/direct buy supplier advantage is still fruitful today in the enterprise segment (much less so in the consumer segment) and in the cloud infrastructure segments, which provide the guts for the productivity shift that is going on today with the move to the cloud.
The scale and supply chain has allowed DELL to deploy free cash into building a cloud hardware product line that a has a long runway ahead of it. Many of the cloud infrastructure providers we like to talk about a lot use Dell hardware. Many that we do not talk about also use Dell hardware. For example, I've noted on the board that Tata is partnering with Dell to bring out its own IaaS service in Singapore and India. Dell and HP are trying to further strengthen their market positions here by working with the OpenCompute project so that they can help build hardware and data centers that allow developers and platform providers to focus on just that, and not have to worry about hardware at all.
Finally, there is also know-how and innovation. Dell hasn't been known to be innovative in the past, but is becoming more so, especially in the cloud hardware segment and in the services segment. DELL is also snapping up IP related to its cloud hardware businesses and has vowed to continue to focus on IP.
I think it's useful to break DELL up into its varying businesses, all of which do actually work synergistically to strengthen its customer relationship network.
Consumer PCs -- Declining competitive advantage here because the lowest-cost/direct buying edge that DELL used to have matters less and less . But note that less than 10% of earnings come from this segment
Enterprise PCs and hardware -- Still has a competitive advantage due to customer relationship network and low-cost supply chain. Margins continue to decrease though.
Cloud infrastructure hardware -- Scale matters and there is a very long runway for growth here. Buying up IP allows DELL to prepare for a high volume future where margins are pretty decent despite being in the hardware biz
Services, software, and consulting -- High margin and low penetration at the moment. Will be much bigger profit center in the future.
Finally, a huge additional benefit: the management team and Michael Dell. These guys have been doing a great job with the transformation, they are extremely shareholder friendly, and they work as a team. They understand that they need to focus on business and understand what business needs.
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Some additional anecdotal evidence that might interest some of you. I happen to live in Austin, TX, so I will often run into people who work at DELL, which is based in Round Rock. Morale was very low there a couple years back, but recently, everyone I've talked to who works at DELL has said that morale has really improved, along with the work environment and the business prospects.
That's a good thing to hear from those folks.
You went into the details and I like your explanations. The analogy with IBM is effectively very good and Dell's niche is the smaller business.
Thanks TxLaw.
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Shalab, not sure what the question is here but I think it's along the lines of why they are abandoning the build to order model in emerging markets. My view is that the build to order model matters less and less.
You answered one of the questions about Dell moat ( or lack there of ) ;D
LOL - that's one way to look at it! Another way to look at it is to say that Dell is just retooling their competitive advantage as lowest-cost-provider on the PC side. The old model was that they could assemble your exact PC requirements and ship it to you at a lower cost than their competitors. Now that hardware pricing is converging, the incremental cost savings of 200GB HD vs. 250GB HD aren't significant relative to the cost of providing all of those options. So they're consolidating models because it's less expensive to supply 1,000,000 PCs with 12 variations vs. 1,000,000 PCs with 5,000 variations.
But yeah, the advantage they enjoy with their world-beating supply chain is being marginalized. Again, on the PC side only.
Dell's business is changing fast and what you describe is the past. Almost half of Dell employees work in services now!
Dell is opening offices in the Silicon Valley so as to augment its software solutions while optimizing its low margin businesses by outsourcing opportunistically. The build to order model is now only one smaller part of the offering. This is definitely not a business
with super strong moats and coke like franchises but its strength comes from multiple advantages combined together:
- a brand name and a resilient reputation for selling good low cost hardware.
- super efficient distribution channels.
- very good understanding of customer needs (a la WalMart).
- positioning to serve smaller structures (HP and IBM are competing in the large scale areas - large institutions).
- completeness and relevance of the offering: combination of hardware/software-security/services/cloud/storage + partnerships (for network offering with Cisco for example).
- relevance of the old model for servers and appliances and network and still for PCs in certain cases.
- marketing and presence.
- scale.
People who play with hardware like you are a minority and do not represent the mass. Enterprises do not have time to play like this
and they are looking for certain combinations of features.
As a reference:
http://bits.blogs.nytimes.com/2011/05/02/dells-future-beyond-the-pc-business/
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Longleaf Partners Fund is what you might call the Navy SEALs of the financial world -- an elite group that shuns the spotlight while performing incredible feats where others fear to tread.
How Longleaf's manager, the employee-owned Southeastern Asset Management, can handle $40 billion with such success, while receiving so little recognition, remains a mystery to me. I think they must like it this way, and I have two theories why:
1. They want to emulate the underexposed, shareholder-focused managements of the companies they love to partner with.
2. By resisting the urge to chest-thump, they gain long-term investors, as opposed to speculators lured by past performance.
Longleaf stills own Dell stock, but it's added call options to its arsenal as well, essentially levering its position. Dell call options and stock now make up 7.7% of the Partners Fund.
Any Longleaf shareholder will tell you, being contrarian is what Longleaf does best. And at least in the past, it's made them a lot of money
Audio Longleaf's Staley Cates on DELL:
http://www.longleafpartners.com/media%20files/050510-07.mp3
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Notes From Longleaf Partners' Annual Meeting
Ben Graham I just listen to the mp3 and I could not agree more with them. Thank you, that was a pleasure to listen to their case.
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Dell's ability to serve mid to small businesses or specific teams within an organization is one big part of its moat. Many IT people directly go to Dell to order their next machines and do not think twice about it (servers, laptops, appliances etc...). They can adjust their needs through Dell's web site and order. Extremely practical, it almost has become a conditioned reflex to go see what they have to offer when new hardware is needed. As far as I know this model has not been fully replicated by others. Michael Dell has complemented this offering with additional services of higher value and margins and I think that actually reinforced this area. Himself said recently that competitors cannot serve mid to small businesses as well as they do. In many cases it is still true. They invested and are investing in cloud, storage, security, software and services. They can complement their offerings with the new kinds of devices, I do not see this area as disruptive and demands for PCs and servers will continue to grow. Margins are improving, the distribution chain has gone through a recent cycle of cost cutting and optimization, I do not think it is that easy to replicate their distribution channels.
So IMHO it is a combination of brand name - good low cost hardware, low cost on demand distribution channels, completeness of the offering and customization capabilities. This has not been replicated by anyone up to now.
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Kinect technology will be used to get there: http://seattletimes.nwsource.com/html/businesstechnology/2015343377_microsoftkinect17.html.
I also saw some demos of Microsoft research in terms of user interface for the future and it is really cool.
Microsoft's pipeline is really very rich right now and it covers all areas where Microsoft has to meet competition. I cannot wait to not only see it deployed but also to find out all cross-applications that they will create and push from all this (like the Comcast + Skype deal).
I agree. They are finally on the right track, and realize they have to work quickly. Windows adapted and it is much more user-friendly, but they had to go through the mistake of Vista to get to Windows 7. Same thing with gaming. They've had to make similiar mistakes in mobile and tablets, and they will get better. But their competitors are moving very quickly, so they will have to do the same.
RIMM may end up being the next odd man out...just too slow getting their technology out, and are falling behind. RIMM's still making money, but the moat is diminishing quickly. Microsoft does not want to go that route. Cheers!
I agree also. And you know Microsoft has an history of coming next but invading the market with an approach that works business-wise once the market has pretty much been created by others or so. I mean look at Xbox, Windows and Office (Excel and Word and even Sharepoint! for example).
Microsoft might end up being the one that really puts RIMM in a very tough position as they will compete in the enterprise business and Microsoft will do what it has done before to build a moat: have all the important features, applications and bundles that make them more enticing if not a must-have in many situations.
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There are 3 companies that reportedly have over a million servers in data centers. Amazon, Google, and you guessed it.. Microsoft. If anything I would say Apple is the company that's bringing up the rear when it comes to cloud computing...
They are bringing up the rear, but they actually have the most intuitive appliances to take advantage of the cloud. If Microsoft or Google could achieve the same user experience with Windows or Android, then that would be very different. They are getting much better, but still have a ways to go. Cheers!
Kinect technology will be used to get there: http://seattletimes.nwsource.com/html/businesstechnology/2015343377_microsoftkinect17.html.
I also saw some demos of Microsoft research in terms of user interface for the future and it is really cool.
Microsoft's pipeline is really very rich right now and it covers all areas where Microsoft has to meet competition. I cannot wait to not only see it deployed but also to find out all cross-applications that they will create and push from all this (like the Comcast + Skype deal).
HP to Spin Off PCs, Eyes Software Purchase
in General Discussion
Posted
I left the boat yesterday and reallocated in other stocks.