For You Believers in DELL

[Packer16]

If they can provide that type of ramp up these acquistions may be accretive.  Given the sticky nature of enterprise software, unless they are replacing internal systems or nothing at all, those types of ramp-ups appear steep.  In addition, even though the latest acquistion was large > $2 billion, it was only 6 mos FCF and provides a higher rate of retunr that the cash it replaced.

 

Packer

[oldye]

Do you guys know if there's a way to estimate how Dell's acquisitions have performed since their acquisition? Or if there's a way to break-out acquisition revenues/operating income from existing businesses? Also, does Dell breakout gross margins by product line?

 

I find what Dell said about growing EqualLogic's customer base from 5,000 to 30,000 to be quite interesting. If they're able to ramp up distribution/sales at that rate, these pricey acquisitions don't seem that expensive.

 

Dell says that they've done about 10 billion dollars worth of acquisitions since 08, have already collected about 9 billion in revenues and have increased revenues by 90% from time of purchase. 

[mcliu]

Do you guys know if there's a way to estimate how Dell's acquisitions have performed since their acquisition? Or if there's a way to break-out acquisition revenues/operating income from existing businesses? Also, does Dell breakout gross margins by product line?

 

I find what Dell said about growing EqualLogic's customer base from 5,000 to 30,000 to be quite interesting. If they're able to ramp up distribution/sales at that rate, these pricey acquisitions don't seem that expensive.

 

Dell says that they've done about 10 billion dollars worth of acquisitions since 08, have already collected about 9 billion in revenues and have increased revenues by 90% from time of purchase.

 

Thanks oldye, do you know where I can find more colour on that?

[DukeCrow]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be adisappointment. We had thought that the growth in the non-PC business would be enough tooffset the deterioration in the PC business. The non-PC growth was smaller than we’d hopedand the PC deterioration was worse than we’d anticipated. While DELL has a good balancesheet, it appears likely that management will try to use much of the cash to try to buy its wayinto better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

[txlaw]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be adisappointment. We had thought that the growth in the non-PC business would be enough tooffset the deterioration in the PC business. The non-PC growth was smaller than we’d hopedand the PC deterioration was worse than we’d anticipated. While DELL has a good balancesheet, it appears likely that management will try to use much of the cash to try to buy its wayinto better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

 

His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

[DukeCrow]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

 

His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

 

It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that?

 

Thanks.

[txlaw]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

 

His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

 

It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that?

 

Thanks.

 

I just don't buy that he exited based on lower than expected non-PC growth versus PC revenue decline. 

 

Would he really be making decision on fluctuations in revenue growth in the near term/medium term, given the situation for large enterprise and the public business in light of Europe?  That's far too close to what the analysts do each quarter. 

 

Now, it does sort of sound like he doesn't think that cash will be used wisely at DELL.  That is a different rationale for exiting, but he doesn't commit to that viewpoint.

 

I have no insight in addition to what DELL publicly discloses in its quarterly report and CC.

[mcliu]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

 

His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

 

It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that?

 

Thanks.

 

I just don't buy that he exited based on lower than expected non-PC growth versus PC revenue decline. 

 

Would he really be making decision on fluctuations in revenue growth in the near term/medium term, given the situation for large enterprise and the public business in light of Europe?  That's far too close to what the analysts do each quarter. 

 

Now, it does sort of sound like he doesn't think that cash will be used wisely at DELL.  That is a different rationale for exiting, but he doesn't commit to that viewpoint.

 

I have no insight in addition to what DELL publicly discloses in its quarterly report and CC.

 

Maybe he's uncomfortable with the downside risks now that a lot of the balance sheet that protects the downside's converted into streams of income that may or may not exist in a few years?

[txlaw]

Looks like Einhorn exited his DELL position last quarter.

www.scribd.com/doc/100941463/Greenlight-Q2-Letter-to-Investors

 

Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

 

Comments?

 

His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

 

It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that?

 

Thanks.

 

I just don't buy that he exited based on lower than expected non-PC growth versus PC revenue decline. 

 

Would he really be making decision on fluctuations in revenue growth in the near term/medium term, given the situation for large enterprise and the public business in light of Europe?  That's far too close to what the analysts do each quarter. 

 

Now, it does sort of sound like he doesn't think that cash will be used wisely at DELL.  That is a different rationale for exiting, but he doesn't commit to that viewpoint.

 

I have no insight in addition to what DELL publicly discloses in its quarterly report and CC.

 

Maybe he's uncomfortable with the downside risks now that a lot of the balance sheet that protects the downside's converted into streams of income that may or may not exist in a few years?

 

 

Perhaps.  He certainly says something like that. 

 

At the same time, given the strength of DELL's balance sheet and the negative working capital business model, that rationale is puzzling unless he is really worried that the transformation M&A at DELL will not work out such that cash will be converted into illiquid assets (tangible and intangible) that are worth a lot less than the cash price paid. 

 

Bottom line, the rationale for dumping DELL is a bit confused or muddled. 

 

Now perhaps Einhorn hadn't really thought the investment through from a qualitative perspective -- I wouldn't be entirely surprised, as he seems to be much better with his shorts than his longs and macro calls.

 

On the other hand, this is David Einhorn.  So, giving him the benefit of the doubt, I am speculating that perhaps he just thinks DELL will be dead money for a while given the short thesis by Chanos and is taking tax losses to redeploy into different longs (not sure how that works for investment managers). 

 

Because, otherwise, it just seems like he is missing the whole point of the DELL transformation.

[rogermunibond]

Einhorn had a weird move with XRX where he bought, sold shortly after on Euroland weakness fears and then bought back in maybe a few quarters later.  It's entirely possible he could do the same with DELL.

[Guest valueInv]

If this catches on, it could potentially be very disruptive to the likes of Dell:

 

http://www.businessinsider.com/inside-facebooks-plan-to-revolutionize-the-entire-hardware-industry-2012-8

[Parsad]

Don't think it will be disruptive, but rather ideas being adapted.  You will get better technology, but since it is open source and not patented, everyone will adapt to it and apply it, including the existing for-profit companies.  Cheers! 

[Guest valueInv]

Don't think it will be disruptive, but rather ideas being adapted.  You will get better technology, but since it is open source and not patented, everyone will adapt to it and apply it, including the existing for-profit companies.  Cheers!

If the were to adapt it what is the probability that:

1, they will be able to maintain marketshare in an open platform?

2, they will be able to maintain margins?

 

Take a look at Sun Microsystems as a case study.

 

As companies move to the cloud, they buy fewer servers and storage boxes. The cloud vendors have greater bargaining power and multiplex their resources

more efficiently. The current trend is that these vendors are not buying from companies like Dell.

[txlaw]

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

[PlanMaestro]

What worried me more was the cash conversion cycle problem and the big drop of FCF because of that. Actually, revenues by division did not look so bad except the expected drop in Consumers.

 

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

[Guest valueInv]

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

Windows 8 is likely to only make things worse. At best enterprises will take a wait and see approach. At worst, there will be some shift to Mac OSX. Either scenario is going to hurt them.

 

Doesn't Fairfax own Dell?

[txlaw]

What worried me more was the cash conversion cycle problem and the big drop of FCF because of that. Actually, revenues by division did not look so bad except the expected drop in Consumers.

 

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

 

But CCC should change going forward due to the shifting business mix, so I wasn't particularly disturbed by that change given the revenue mix percentage changes this quarter.

 

Consumer drop was expected, and I figured there would be holdup due to Win 8 release, but the client device decline was still more than I thought it would be.  And while emerging markets weakness was not surprising in light of what's been occurring with economies abroad, it was still a bigger percentage drop than I was expecting.

 

Gross margins were good.  Service revenue growth was fine, and I would like to see how that changes after they rework the sales force and after the new HP guy gets integrated, not to mention after the digestion of the recent acquisitions.

 

Nice to see that they have a full product line ready to be rolled out when Win 8 gets introduced, although anecdotally I have not heard much talk about a refresh cycle being spurred by Win 8.  The wait and see approach to Win 8 does seem prevalent among the business folk.  The radical redesign seems to be giving people pause.  Not so sure that Win 7 is only halfway done -- I'm willing to bet that a large part of the 50% remaining will either wait until Win 8 or start exploring alternative solutions (OSX, thin clients, even BYOD for the smaller businesses).

 

Not as bad as I initially thought, but still not a great quarter.

[txlaw]

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

Windows 8 is likely to only make things worse. At best enterprises will take a wait and see approach. At worst, there will be some shift to Mac OSX. Either scenario is going to hurt them.

 

Doesn't Fairfax own Dell?

 

Fairfax owns quite a bit of DELL.

 

Win 8 could make things worse in the short run -- it does appear there is a wait and see approach that will be taken by enterprise, particularly because of the radical redesign.  And I don't buy that the Win 7 transition is only half over.  I think there could be skipping over Win 7 by a good number of enterprises. 

 

On the other hand, in the medium run, if Win 8 is a good product and people like it, then the refresh cycle will help staunch the revenue declines in the declining product biz lines, which will enable DELL to continue to invest in growth biz lines with higher margins, even while continuing to optimize OpEx.  And an emerging markets upwards trajectory will restart if Win 8 is a good product that people want to adopt.

 

So we'll see what happens over the next couple of quarters.

[kevin4u2]

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

Windows 8 is likely to only make things worse. At best enterprises will take a wait and see approach. At worst, there will be some shift to Mac OSX. Either scenario is going to hurt them.

 

Doesn't Fairfax own Dell?

 

I don't think you understand the stickiness of Windows.  I know at the company I work for, there is no chance of changing operating system.  We have too much software that only runs on windows.  Changing operating systems is simply not an option. 

 

The second reason would be the huge risk this would be for IT departments.  The hardware upgrade would be cost prohibitive, especially due the fact that everyone would have to be upgraded at the same time.  Thirdly, the sheer amount of training require to make a major change like this is simply not worth the effort.  This change could risk data and quality issues.  Forth, what you pay for what you get is computing power on a mac isn't going to make cost conscience companies want to make a change.  Consumers suffer from herd mentality and social pressures which drives them to Apple.  Lastly, the specs on an mac wouldn't cut it for our engineering department. 

 

I could be wrong but where I work, and we're not a big company, it switching just isn't an option.  Very small companies could likely make the switch. 

 

Fairfax owns Dell, and they'll make money on Dell. 

[Hoodlum]

This reminds me of when people said businesses would switch to Linux to save money.  Microsoft is even more entrenched now with businesses.

 

[Guest rimm_never_sleeps]

if businesses haven't shifted to Mac OS by now they aren't going to. the time for them to shift was when vista came out. that's also when Jobs was hammering windows daily on tv. msft survived vista not without some PR damage. win 8 is a better product than win 7. incrementally win 8 lets them sell tablet OS now. this is not another vista. windows is entrenched in enterprises because it's not just windows you'd have to root out. it's office exchange sharepoint database etc. people thought IBM was done. little did they know that you could not root out IBM products. they were in the bloodstream of the corporation. market shares are stable at this point. it's really a matter of how fast the market for it services are going to grow.

[Guest valueInv]

Pretty ugly quarter.  In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8.

 

http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

Windows 8 is likely to only make things worse. At best enterprises will take a wait and see approach. At worst, there will be some shift to Mac OSX. Either scenario is going to hurt them.

 

Doesn't Fairfax own Dell?

 

I don't think you understand the stickiness of Windows.  I know at the company I work for, there is no chance of changing operating system.  We have too much software that only runs on windows.  Changing operating systems is simply not an option. 

 

The second reason would be the huge risk this would be for IT departments.  The hardware upgrade would be cost prohibitive, especially due the fact that everyone would have to be upgraded at the same time.  Thirdly, the sheer amount of training require to make a major change like this is simply not worth the effort.  This change could risk data and quality issues.  Forth, what you pay for what you get is computing power on a mac isn't going to make cost conscience companies want to make a change.  Consumers suffer from herd mentality and social pressures which drives them to Apple.  Lastly, the specs on an mac wouldn't cut it for our engineering department. 

 

I could be wrong but where I work, and we're not a big company, it switching just isn't an option.  Very small companies could likely make the switch. 

 

Fairfax owns Dell, and they'll make money on Dell.

 

Like I said, it is the worst case scenario. MSFT's moat comes from switching costs. Windows 8 increases the cost of staying within the Windows platform. While the differential cost for your company might be high, there are companies out there for whom the difference may not be that high.

We are moving to a world of cloud, tablets, smartphones, etc.

 

Not everything has to be a forklift change. More than likely, a small percentage is going to switch over and then more and more users start requesting Macs

[Guest valueInv]

if businesses haven't shifted to Mac OS by now they aren't going to. the time for them to shift was when vista came out. that's also when Jobs was hammering windows daily on tv. msft survived vista not without some PR damage. win 8 is a better product than win 7. incrementally win 8 lets them sell tablet OS now. this is not another vista. windows is entrenched in enterprises because it's not just windows you'd have to root out. it's office exchange sharepoint database etc. people thought IBM was done. little did they know that you could not root out IBM products. they were in the bloodstream of the corporation. market shares are stable at this point. it's really a matter of how fast the market for it services are going to grow.

The upgrade required to Vista is different from the upgrade required to Windows 8. A lot of companies just waited out the Vista cycle. Unless MSFT drops Metro, they don't have the option to wait out the Windows 8 cycle.

 

Apple has already made inroads to enterprises with BYOD smartphones and tablets. The case for a Mac is much easier today especially with applications moving to the cloud.

 

Walk into most startups in the Silicon Valley and you will see a sea of Macs. These companies are likely to grow fast and with them so will Mac's marketshare. If you look at overall marketshare for the last few years, Mac has been growing. Its not stable, like you say. 

 

Many IBM products did get rooted out. Its just that IBM developed new products and businesses to continue to survive. How many businesses do you know who run IBM mainframes today or Lotus Notes?

 

This is the tech industry, market shares are rarely stable. If they were, why are HP and Dell hurting? Clearly, something is changing or we wouldn't be having this conversation.

[gokou3]

This is the tech industry, market shares are rarely stable. If they were, why are HP and Dell hurting? Clearly, something is changing or we wouldn't be having this conversation.

 

Couldn't it be that corporations are waiting for the impending win8 release before they upgrade their machines?  Along the same line, I wouldn't buy a iphone 4S now knowing that iphone 5 is coming out next month.

[Guest valueInv]

This is the tech industry, market shares are rarely stable. If they were, why are HP and Dell hurting? Clearly, something is changing or we wouldn't be having this conversation.

 

Couldn't it be that corporations are waiting for the impending win8 release before they upgrade their machines?  Along the same line, I wouldn't buy a iphone 4S now knowing that iphone 5 is coming out next month.

I doubt it. Unlike consumers, the enterprise goes through a long cycle of evaluation, testing, planning for a new rollout. Most major rollouts will be at least a year after the initial release. Unlike consumers who eagerly await new versions, upgrade is a pain for the enterprise.