PlanMaestro Posted September 5, 2012 Share Posted September 5, 2012 Dell's consultants telling what they've been doing in the PC segment. I guess Dell continues to be Baindead. BTW, the article is also interesting if you are following the JCP saga. http://www.bain.com/publications/articles/focused-products.aspx Dell’s simplification saga Dell’s meteoric rise from dorm-room start-up to the leading personal computer company of the mid-1990s and early 2000s was really a story of customer focus. Its direct sales model allowed it to deliver products at significantly lower cost. Its customer relationships and innovative supply chain enabled it to understand the innovations that buyers wanted and provide them faster than competitors. Dell’s model also gave sophisticated customers the ability to configure their computers exactly as they wished. Over time, however, the business changed. The PC market expanded, technological innovation slowed and prices fell. Fewer customers valued configurability. Competitors began selling fixed-configuration machines directly, reducing Dell’s historical advantage. Before long, Dell’s legacy model of allowing vast configurability was dragging down every part of its business. Salespeople had to spend a lot of time on the phone with each customer. Tech support was expensive—the more configurations, the more frequently the computers were likely to fail. Dell’s performance deteriorated: Its market capitalization, once more than $100 billion, sank below $20 billion by mid-2009. Recognizing clearly the value of recapturing its historic customer focus, Dell attacked the problem, using the five-step process described above. Its first step was customer research. Teams analyzed millions of records, using statistical tools such as cluster analysis to determine which product attributes were most important to each customer segment and which options buyers in each segment tended to choose. The analysis showed the company how many clusters would be required to meet each segment’s needs, and it revealed which components fit best together in a cluster. Thanks to this clustering, Dell eliminated more than 99% of its consumer product configurations—a remarkable feat in any business. In parallel, Dell X-rayed every cost bucket to understand how each set of costs changed with complexity. It also benchmarked competitors to understand the cost position required. A dedicated cross-functional team then set cost targets, reinvented processes to help the company meet those targets and established the necessary governance procedures to keep complexity out. The results of all these measures have been remarkable. Dell lowered its manufacturing costs by 30% and improved operating margins. Its revenue growth outpaced the industry. “Exactly what you want faster than anyone,” claimed the company—and the numbers supported the claim. More than 40% of buyers were ordering preconfigured machines in early 2012, up from zero in 2010. Dell was shipping orders out the next day 98% of the time. The PC market, of course, is continuing to evolve, and Dell along with it. But the company’s renewed customer-centered approach should provide both the foundation and the funds for the company’s future growth. Link to comment Share on other sites More sharing options...
west Posted September 5, 2012 Share Posted September 5, 2012 Plan, what do you mean by "Baindead"? I know of Bain, but I'm not familiar with that term. Link to comment Share on other sites More sharing options...
PlanMaestro Posted September 5, 2012 Share Posted September 5, 2012 Plan, what do you mean by "Baindead"? I know of Bain, but I'm not familiar with that term. It was a derogatory term used by Dell's rank and file meaning that Dell had outsourced its brain. But I have to say, there are worst consultants to outsource your brain to. Link to comment Share on other sites More sharing options...
west Posted September 5, 2012 Share Posted September 5, 2012 It was a derogatory term used by Dell's rank and file meaning that Dell had outsourced its brain. But I have to say, there are worst consultants to outsource your brain to. Ah ok. Thanks for clarifying. Link to comment Share on other sites More sharing options...
DCG Posted September 5, 2012 Share Posted September 5, 2012 Morningstar's writeup on Dell is a real good read that presents both the bull and bear case for the company: http://ibd.morningstar.com/ERR/500/DELL.pdf Link to comment Share on other sites More sharing options...
PlanMaestro Posted September 5, 2012 Share Posted September 5, 2012 Felix Salmon The problem with buybacks, Dell edition http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/ LINKING IS NOT ENDORSEMENT (I only put a couple of comments on things that did not pass the smell test) Fifteen years ago today, on September 4, 1997, Dell stock closed at $86.69 per share; on a split-adjusted basis, that works out to $10.84 per share today. The stock peaked at almost 5 times that level, in March 2000, but it’s not looking quite so hot any more: it’s now back down to $10.52 per share. Over the course of the intervening 15 years, Dell has been solidly profitable, and in fact reached record earnings per share of $1.87 in 2011. It has never had an unprofitable year, and the company’s total earnings since 1997 (if you exclude 1997′s earnings but include the $1.68 in 2012) total $15.40 per share. How is it possible that Dell has earned more than $15 per share since 1997, has never lost any money, has never paid a dividend, and is now worth less than $11? The answer, of course, is buybacks: Based on their annual 10K filings, from Fiscal Year 2005 to 2012, Dell has purchased approximately 989 million of its own shares at a cost of over $24bn [average of $25 per share does not sound too bad to me]… Going back further to 1997 (through February 3, 2012), Dell has reportedly spent approximately $39 billion in share repurchases under a $45 billion repurchase program. $39 billion is more than double Dell’s current market capitalization of $18 billion, and it’s over a thousand times more than the $30 million that Dell actually raised from the market in its 1988 IPO. Dell, then, is an extreme example of a phenomenon that is actually typical of the market as a whole, which has seen net equity issuance of negative $287 billion in just the past ten years — and that’s not even counting dividends. Shareholders like to think of the stock market as a place where they fund companies with equity, take risks, and then reap returns. But in reality shareholders take out much more than they put in. Every company says it wants buy-and-hold shareholders, who will stick with the firm for the long term. But a buy-and-hold shareholder in Dell is looking particularly idiotic right now. If you bought 15 years ago at $10.84, you should expect to have at least $15.40 in value at this point: after all: that’s how much the company has made since then. Instead, you have less than you started with. And all the extra money went to fickle shareholders who sold their stock back to the company. In principle, I quite like buybacks over dividends: they’re a way of returning cash to shareholders, without sticking those shareholders with possibly-unwanted income. In theory, shareholders who want income will sell some percentage of their shares back to the company and get income that way, while shareholders who don’t want income will see the value of their shares rise, thanks to the fact that there’s extra demand in the market and the fact that the free float is shrinking. In practice, however, as we can see with Dell, it doesn’t always work that way. The company ends up overpaying for its shares when the stock is high, thereby essentially taking money which belongs to all shareholders, and distributing it only to those who are exiting. As a result, the most loyal and faithful shareholders can end up with less than they started with, even when the company has been solidly profitable all along. If things were sensible, a company could simply declare a dividend, and then the investors who didn’t want the income could just reinvest that dividend back into the stock. In the UK, we have things called scrip dividends which serve that purpose: you basically get your dividend paid in stock rather than cash. If you want to sell that stock and take the dividend you can, but if you don’t, you don’t have to. If Dell had gone for a scrip dividend rather than buybacks, then at least our hypothetical 1997 buy-and-hold investor would have more stock now than she had originally, [???? of a higher total number of shares!] and the past 15 years’ profits wouldn’t have disappeared into the pockets of the lucky few who sold high on the secondary market. Those people would still have made money on the movement of the stock; they just wouldn’t have taken profits from other shareholders. As for Dell’s statement, justifying its lack of a dividend, saying that “our earnings are best utilized by investing in internal growth opportunities, such as new products, new customer segments and new geographic markets” — well, it doesn’t pass the laugh test. Dell has spent all of the money from its earnings — and then some — on stock buybacks, rather than on new products or new markets. And stock buybacks are never an “internal growth opportunity”. Link to comment Share on other sites More sharing options...
Parsad Posted September 5, 2012 Author Share Posted September 5, 2012 Morningstar's writeup on Dell is a real good read that presents both the bull and bear case for the company: http://ibd.morningstar.com/ERR/500/DELL.pdf Thanks DCG...very good article! Cheers! Link to comment Share on other sites More sharing options...
DCG Posted September 6, 2012 Share Posted September 6, 2012 Thanks for posting that Plan Maestro. While they've made a few decent acquisitions, Dell's capital allocation has been pretty dismal over the last decade or so. Link to comment Share on other sites More sharing options...
PlanMaestro Posted September 6, 2012 Share Posted September 6, 2012 Thanks for posting that Plan Maestro. While they've made a few decent acquisitions, Dell's capital allocation has been pretty dismal over the last decade or so. Hey, I liked that Morningstar report. Just the 10y financials Valueline-style are worth the price of admission. Well, it's free but you know what I mean. I am not so sure I agree that the buybacks at around $20 were so stupid, but I am sure one the reasons given to avoid the stock. Link to comment Share on other sites More sharing options...
EngineeringIncome Posted September 7, 2012 Share Posted September 7, 2012 It's official. Dell has joined the dividend club. $0.08 dividend to be paid on October 22nd to shareholders as of October 1st. Give or take around a 3% yield currently. I still don't agree with starting a dividend policy now after they've resisted for so long as they stressed buybacks. Given the low share price I would much rather see buybacks now (as I think a lot of others would). Ah well, guess I can just reinvest the dividends myself after paying the tax / commission. Sigh... http://www.foxbusiness.com/technology/2012/09/06/dell-details-first-ever-dividend-payout/ Link to comment Share on other sites More sharing options...
DCG Posted September 7, 2012 Share Posted September 7, 2012 It's official. Dell has joined the dividend club. $0.08 dividend to be paid on October 22nd to shareholders as of October 1st. Give or take around a 3% yield currently. I still don't agree with starting a dividend policy now after they've resisted for so long as they stressed buybacks. Given the low share price I would much rather see buybacks now (as I think a lot of others would). Ah well, guess I can just reinvest the dividends myself after paying the tax / commission. Sigh... http://www.foxbusiness.com/technology/2012/09/06/dell-details-first-ever-dividend-payout/ I'd rather see them spend cash on acquisitions at this point. Link to comment Share on other sites More sharing options...
fenris Posted September 7, 2012 Share Posted September 7, 2012 http://www.bloomberg.com/news/2012-09-07/intel-cuts-third-quarter-sales-forecast-citing-weak-demand.html "Intel Corp. (INTC), the world’s largest semiconductor maker, slashed its third-quarter sales forecast citing declining demand for personal computers from corporate customers in a weakening economy. Sales will be $12.9 billion to $13.5 billion, down from a prior projection of $13.8 billion to $14.8 billion, the Santa Clara, California-based company said in a statement today. Analysts on average had estimated sales of $14.2 billion, according to data compiled by Bloomberg. PC makers are reducing orders for Intel’s chips at a time of the year when they normally buy more to build products for the holiday shopping season. Intel said demand for chips used in business machines and orders in emerging markets are worse than expected, compounding concern that the PC market may not grow this year as consumers flock to smartphones and tablets. “It’s worse than everyone expected,” said Patrick Wang, a New York-based analyst for Evercore Partners Inc. (EVR) “Their consumer PC business is getting whacked.”" Link to comment Share on other sites More sharing options...
alwaysinvert Posted September 10, 2012 Share Posted September 10, 2012 For Dell proponents in the thread: What is it that makes your conviction high that the PC business will keep chugging along decently for at least a couple more years? Is it only the historical operational efficiency and Michael Dell or am I missing something? Link to comment Share on other sites More sharing options...
boilermaker75 Posted September 11, 2012 Share Posted September 11, 2012 I recently had a need at work for an iPad. I received a response from IT to make sure I was aware an iPad is not a laptop and could not replace my laptop. I agree, I could not get by without my laptop (although it is not a PC but a MacBook). I see how some consumers who surf the web, read books, watch movies, etc., could have everything they need with an iPad and no longer any need for DELL products. But there seems to be a business base that will need PCs/laptops for a while yet. Link to comment Share on other sites More sharing options...
bathtime Posted September 17, 2012 Share Posted September 17, 2012 Fwiw, DELL triggered a buy on Bill Cara's RSI tool on Friday: http://rsi.caracommunity.com/RSIApp/RSIApp.html#dell "Buy alert (trig. 1 days ago [on 2012-09-14 at $10.83, +0.00% chg], after a 15 day AZ)" To put its use into context, here's Bill Cara's recent exchange with a commenter. ----- I would like to thank Bill for his RSI tool and how great it is. A buy alert for VALE came up on 9/6 and i got in at 16.96 and it has shot up. Thanks for the great tool! ----- I'm happy you are happy! But, in its simplest form, RSI has an average performance of all the indicators. You might have been looking at several factors subconsciously before making that decision. In fact I know that any one indicator is not enough, and when it does appear to be working really well, the market will adjust until it doesn't. I have always said that to invest successfully, we need a tool kit and then approach the decision making with the same common sense that the typical business person does. ---- Link to comment Share on other sites More sharing options...
BargainValueHunter Posted September 23, 2012 Share Posted September 23, 2012 Dell's new products for the enterprise do look rather impressive. We will see if Windows 8 will drive sales next quarter. http://www.informationweek.com/hardware/desktop/dell-unveils-windows-8-enterprise-tablet/240007671?google_editors_picks=true A tablet fueled by a next-gen Intel Atom system-on-a-chip (SoC), the Latitude 10 will ship with Windows 8 Professional pre-installed. The device sports a 10.1-inch, Gorilla Glass-protected, 1366 x 768-pixel touchscreen and features a swappable battery--an appealing tablet rarity, though the device's 18-hour battery life might make the perk redundant for many users. The Latitude 10 also is equipped with an assortment of ports and slots: one full-size USB connection, a micro-USB charging socket, a mini-HDMI port, a headphone/microphone jack, an SD card reader, and micro-SIM for WWAN. These options can be expanded via a standalone desktop dock. Other specs include an 8-MP camera on the rear, a front-facing HD camera for video chats, 2 GB of RAM, and up to 128 GB of eMMC NAND storage. As an enterprise-grade device, the Latitude 10 also features security options such as Dell Data Protection encryption and smartcard and fingerprint readers. Link to comment Share on other sites More sharing options...
MVP444300 Posted September 25, 2012 Share Posted September 25, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. Link to comment Share on other sites More sharing options...
Parsad Posted September 25, 2012 Author Share Posted September 25, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. We are loading up. It will be one of the best investments we make in the next couple of years. Cheers! Link to comment Share on other sites More sharing options...
Guest valueInv Posted September 25, 2012 Share Posted September 25, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. We are loading up. It will be one of the best investments we make in the next couple of years. Cheers! Why is this your best investment? Link to comment Share on other sites More sharing options...
Guest valueInv Posted September 25, 2012 Share Posted September 25, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. There may be better buying opportunities down the road: http://www.businessinsider.com/intel-ceo-windows-8-isnt-ready-yet-2012-9 Link to comment Share on other sites More sharing options...
Parsad Posted September 26, 2012 Author Share Posted September 26, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. We are loading up. It will be one of the best investments we make in the next couple of years. Cheers! Why is this your best investment? See post in thread below: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ostk-overstock-com-(short)/msg86861/#msg86861 Cheers! Link to comment Share on other sites More sharing options...
Guest Posted September 26, 2012 Share Posted September 26, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. For whatever it's worth, it was under $9 in 2009. Link to comment Share on other sites More sharing options...
MVP444300 Posted September 26, 2012 Share Posted September 26, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. For whatever it's worth, it was under $9 in 2009. Opps you're correct. My bad I looked at the chart wrong, I hope it falls below that again. lol Link to comment Share on other sites More sharing options...
txlaw Posted September 26, 2012 Share Posted September 26, 2012 Dell is under $10 per share for the first time in over a decade. Anyone making any purchases at these levels or are you waiting to buy more at lower levels. Sure hope Dell is buying back a lot of stock at these prices. 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! Link to comment Share on other sites More sharing options...
shalab Posted September 26, 2012 Share Posted September 26, 2012 Dell mix of revenue - ~80% products and ~20% service. Year over year, Dell's product revenue mix is showing a decline ( corporate, public government and retail customer ) and service revenue is growing at low single digit rate. Dell is hamstrung by a change in business model. For dell thesis to work: - the business shouldnt decline quickly (ala RIMM) - market should be willing to pay a higher price - ala Ericopoly's volatility trade Link to comment Share on other sites More sharing options...
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