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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


Dell Inc


Dell Inc (DELL:Nasdaq)

The company was founded in 1984 by Michael Dell as Dell Computer Corporation and changed its name to Dell, Inc. in 2003.

Dell did'nt invent the computer, but it did revolutionize the way they are sold.  Dell sells its products directly to large corporate, government, healthcare, and education accounts, as well as small-to-medium businesses and individual consumers. Dell operates principally in the United States, Europe, Middle East and Africa, and Asia Pacific-Japan.  Dell, Inc. and its subsidiaries engage in the design, development, manufacture, marketing, sale, and support of  various computer systems and services to customers worldwide. 

The company’s products and services enable customers to build their information technology and Internet infrastructures. It offers various products, including desktop computer systems and workstations; mobility products, such as notebook computers, mobile workstations, MP3 players and handhelds; software and peripherals that consist of printers and displays, projectors, peripheral products, software titles, notebook accessories, networking and wireless products, digital cameras, power adapters, scanners and other products; servers and networking products; and storage devices.

Dell also provides various services, which comprise assessment, design, and implementation services; deployment services; asset recovery and recycling services; training services; enterprise support services; client support services; and managed lifecycle services. Further, it offers various financing alternatives, asset management  services, and other customer financial services for business and consumer customers in the United States, through Dell Financial Services L.P., a joint venture between the company and CIT Group, Inc.

Dell was the darling of computer stocks for years, but has fallen on tough times in the last 12 months. Dell has been the butt of many jokes in the last few weeks, as videos of laptops bursting into flames have spread across the Internet and 4.1 million laptop batteries have had to be recalled. Just when all the Apple owners out there were gloating, Apple announced a huge recall of its own. The faulty lithium - ion batteries were used by both Dell and Apple. The battery recall is estimated to cost upwards of US$172 million.  But the exploding batteries are manufactured by Sony.  Although it was Dell and to a lesser extent, Apple that took the initial publicity hit from  the recall, the real fallout will be at Sony, as it is Sony that will bear the brunt of the recall costs.
However; Dell has been emitting black smoke for some time - its stock is down nearly 50% in the last year. There has been a decline in cash flow from operating activities from US$5,310,000 million in February 2005 to US$4,839,000 million in February 2006. There are still some unsolved customer-service troubles.

There has been margin pressure being driven by revamped operations at the likes of Hewlett-Packard, Lenovo and Dell's other main competitors.  Some of Dell's senior executives have been poached by their competitors too. But despite all this Dell is still a great company with net income of US$3,572,000 million to February 2006, up from US$3,045,000 million in February 2005.  Also income from Dell's investing activities  rose significantly in 2006 to US$3,878,000 million, whereas losses were made in 2005 and 2004. 

The share price fall in the last year and especially since the recall, brings Dell's stock price back to
reasonable levels.  Our fairly conservative valuation estimates these shares at a fair value of around $27 right now. Dell happens to look pretty cheap for the first time in years, despite all its other troubles.
The price looks right and there are catalysts on the horizon:  With chip makers engaged in a price war that will give consumers and enterprises far faster chips, and Windows Vista primed to make a late-2006-to-early-2007 debut.

We think the natural urge to upgrade will breathe new life into Dell's sales. Over the long term, we think Dell will come back at its competitors strongly and rectify its recent problems.

Buy Dell Inc (DELL:NASDAQ) up to US$25.


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.