Dell Inc'

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Dell Inc.

• Mary Voss
• November 16, 2004

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Recommendation

• Recommendation Hold
• Currently, hold 500 shares at the market price of
  40.70
• Market Value of 20350.
• We purchased these shares on December 10,1999 for
  41.75
• Cost Basis of 20875.
• Dell has never paid a dividend
• The Financial Analysis shows that Dell might be
  slightly overvalued in the market. However, the
  company continues to grow and steal market share
• Additionally, the overall economy is heating up,
  which means more business for Dell

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Dell Inc.

• Originally incorporated in 1984 in Texas and then
  incorporated in 1987 in Delaware
• Corporate headquarters located in Round Rock,
  Texas
• Sells computers, peripheral equipment, and
  services worldwide
• Its manufacturing facilities are located in
  Austin, Texas Eldorado do Sul, Brazil
  Nashville, Tennessee Limerick, Ireland Penang,
  Malaysia and Xiamen, China.
• Customers From large corporate and government
  to individual consumers
• 53,000 employees worldwide

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Products

• Notebook Computers The Latitude and the Inspiron
  line of notebooks
• - Number one in the U.S. and number two
  worldwide in shipments 2003.
• Desktop Computer Systems The OptiPlex and The
  Dimension desktops
• -Number one in the U.S. and worldwide in desktop
  shipments in 2003
• Printing and Imaging Systems consumer inkjets to
  large workgroup lasers
• Software and Peripheral Products
• - Includes memory, digital cameras, projectors,
  scanners LCD televisions, and MP3 players

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Enterprise Products

• Storage Dell/ EMC systems and Dells PowerVault
• - Net revenue for Dells PowerVault and Dell/
  EMC systems grew 58 during fiscal 2004
• Servers Dells standards-based PowerEdge line of
  servers
• -Dell ranks number one in the U.S.
• Workstations Dell Precision desktop workstation
  or mobile workstation.
• Networking Products Dells PowerConnect
  switches

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Services

• Managed Services
• Professional Services
• Deployment Services
• Support Services
• Training and Certification Services
• Dell Financial Services L.P.
• - A joint venture between Dell and CITI
  Group, Inc in US

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Dells Direct Model

• Most efficient path to the consumer
• Single point of Accountability
• Build-to-order
• Low-cost leader
• Efficient supply chain
• Standards-Based Technology

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Business Strategies

• Main Advantage Low Cost Leadership
• - allows Dell to maximize market share
• Product Diversification
• - trying to bring its efficient business model
  to other product lines such as printers
• - sell over 5 million printers this year
• Global Growth
• - plans on expanding market share in Asia,
  especially China

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Industry Outlook

• Recent high growth rates was a result of a
  depressed market over the past years
• Currently, Global consumer PC demand is
  relatively high, but that is expected to decrease
  after 2005
• Corporate demand expected to stay strong

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Industry Trends

• SIC 3571 - Electronic computers (primary)
• Frequent acquisitions, joint ventures and
  alliances
• Component Construction outsourcing for
  cost-effectiveness
• Increase in offering integration and support
  services

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Industry Trends

• Bitter price wars
• Price Sensitive Consumers
• Small product differentiation
• Escalating market share race
• Dell and HP lead the consumer PC market
• Dell uses direct sales model
• HP sells through retail channels

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Porters Five Forces

• Bargaining Power of Buyer High
• Industry Rivalry High
• - Price and Market Share Wars
• Bargaining Power of Suppliers Moderate
• Threat of New Entrants Low
• - High Economies of Scale
• - Profit Margin on PCs decreasing
• Threat of Substitutes Low
• - Apple computers, high switching costs

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Dells Competitors

• Main competitors IBM, H-P, and Gateway

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Competitors

• All companies have seen an increase in revenue
  over its past 3rd quarter
• - Dell the most
• HP did not meet its own forecast for its third
  Quarter
• Dell entered printer market to hurt H-P
• Industry P/E 34.11, Sector P/E 34.58
  (ValuEngine report)

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Dells Market Share
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Dells Stock Price
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Company Performance

• 2004 Fiscal Year
• - Net Income increased 25 and 70 prior year
• - Revenue increase 17 up from a 14 increase
  the year before
• - Earning per Share were
• 1.03 in 2004, .82 in 2003, and .48 in 2002
• 2005 Fiscal Year looks very promising
• - Revenues rose 19 and net income rose 25
  overall
• Company predicts to become a 60 billion revenue
  company sometime in 2006

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Third Quarter Results

• In the third quarter
• - Earned 846 million compared with 677 million
  a year earlier
• - 33 cents a share from 26 cents a share a year
  ago
• Revenue rose 18 percent to 12.5 billion for the
  third quarter up from 10.6 billion the year
  before
• For the third quarter
• - 27 percent growth in Europe, the Middle East
  and Africa
• - 25 percent growth by Asia Pacific region and
  Japan
• - 20 percent growth by United States business
  customers

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Dells Revenue

• Sales outside the U.S. accounted for
  approximately 36 of Dells net revenue in fiscal
  2004
• Revenue Breakdown
• Americas Business
  21,888,000,000
• Americas Consumer
  6,715,000,000
• Europe
  8,495,000,000
• Asia Pacific-Japan
  4,346,000,000
• Total Revenue
  41,444,000,000

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Financial Analysis

• The P/E Approach
• - Price of 42.21 by end of January P/E of 32
• - P/E of 20 price is 26.38
• - P/E of 40 price is 52.77
• DCF
• - Results in a price of 31.85
• Look at Spreadsheet

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Significant Developments

• Growth and Expansion
• New U.S. manufacturing facility in North Carolina
  
• New customer contact center in Oklahoma
• New distribution center in Ohio for Dell's
  growing printing and computer peripherals
  business
• Services contracts
• - Three year multimillion-dollar contract from
  Honeywell to manage its 16,000 desktop and
  notebook computers in Europe
• Strategic Alliance with Microsoft
• - Unveiled new software that updates Dell
  servers at the hardware, software, and
  applications levels with one mouse-click

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Questions and Comments