1 / 28

Dell Inc. - still a growth company?

Dell Inc. - still a growth company?. Stefan Eisner December 1, 2005. Outline. Company Facts Portfolio Position Business Strategy – key tenets Segmentation by product & geographical Industry – current developments Stock Facts Valuation Recommendation. History.

trinal
Download Presentation

Dell Inc. - still a growth company?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Dell Inc.- still a growth company? Stefan EisnerDecember 1, 2005

  2. Outline • Company Facts • Portfolio Position • Business Strategy – key tenets • Segmentation by product & geographical • Industry – current developments • Stock Facts • Valuation • Recommendation

  3. History • Michael Dell founds Dell Computer Corporation simple concept: selling computer systems directly to customers 1987 International expansion -> opening of subsidary in UK 1988 IPO (3.5m shares at $8,50 each) 1989 Company introduces first notebook computer • Opened manufacturing center in Limerick, Irland -> serve European, Middle Eastern and African Markets 1993 Joins ranks of the top-5 computer system makers worldwide 1997 Dell introduces its first workstation systems 1998 Dell introduces its PowerVault storage products 2000 Company sales via Internet reach $50 million per day 2001 For the first time, Dell ranks No. 1 in global market share 2003 Dell enters consumer electronics

  4. Company Facts • Headquarter: Round Rock, Texas • Chairman of the Board: Michael Dell • CEO, President: Kevin B. Rollins • Revenues last four quarters: $54,182m • Net Income last four quarters: $3,565m • Broad range of products & services • Enterprise systems (servers, storage, workstations, networking products) • Client systems (notebook, desktop computer systems) • Printing and imaging systems, software and peripherals and global services • Employees: 63,700 • Financial Year End: January

  5. Portfolio Position • Bought 500 shares at 41.75 on 12/10/99 • Cost of position: $20,875.00 • Closing price 11/30/05: $30.151 • Value of position: $15,075.50 • Change: -$5,799.50 (-27.78%) • Reviewed on December 2002 and November 2004 (Hold) • % of Portfolio: 5.31% • Jack Henry and Macrovision are also in the Technology Sector

  6. Business Strategy – key tenets (I) • Direct relationship is the most efficent way to the customer • Dell‘s „direct business model“ eliminates wholesale and retail dealers • No expenditures associated with the retail channel • constant flow of information about customers’ plans and requirements • enable Dell to continually refine its product offerings • Custom-built products and custom-tailored services • Build-to-order manufacturing process • Turn over inventory every 4 days on average and reduce inventory levels • Rapidly introduce the latest relevant technology • Rapidly pass on component cost savings directly to customers

  7. Business Strategy – key tenets (II) • Low-cost leader • Efficient supply chain management and manufacturing organization • Concentration on standards-based technologies • Direct business model • Pass those savings to its customers • A single point of accountability for its customers • Offers an array of services • Standards-based technologies deliver the best value to customers • Provide customers with flexibility and choice • Benefit of extensive research and development

  8. Sales & Marketing Channels of Distribution • Sales representatives • Telephone-based sales • Online sales through www.dell.com Marketing programs for specific customer groups • Large business & institutional customers • Field sales force, account teams (system engineers and consultants) • Small-to-medium business & consumers • Advertising on television, Internet, print media and by mailing publications • Dell Direct Stores: view Dell products in person and purchase with assistance • Goverment, healthcare and education market • Specific sales and marketing programs

  9. Manufacturing, Materials Supply & R&D Manufacturing • Build-to-order manufacturing process • Process consists of assembly, software installation, functional testing and quality control • Locations: US(3), Brazil, Ireland, Malaysia, China Materials Supply • Large number of suppliers • BUT Intel Corporation as a sole source supplier of processors and Microsoft sole source supplier for various operating systems and application software products R&D • Very low expenses: $464m for fiscal 2005 (0.94% of Revenue) • HP (4.3%), IBM (5.9%), Sun (16.3%) • Company uses partners (e.g. Intel, Microsoft, EMC, Lexmark) to develop technology

  10. Segmentation by product & services categories Beginning Q1-FY06 supplemental revenue reporting by product & services Q3-FY 06 (total revenue: $13.9 billion) • Desktop PC‘s still most important, but decreasing

  11. Segmentation by product & services categories Beginning Q1-FY06 supplemental revenue reporting by product & services Q3-FY 06 (total revenue: $13.9 billion) • Desktop PC‘s still most important, but decreasing

  12. Geographical Segmentation

  13. Geographical Segmentation

  14. Dell‘s Market Share PC‘s*

  15. Industry – current developments (source: report Mintel cooperation) Demand for Mobility • First time in April 2005 laptop sales surpassed desktop sales Increasing broadbrand penetration • Consumer use their computer more and more for multimedia activities Declining Prices • Increasing number of units shipped, but declining overall revenues • Average computer prices fell nearly 35% between 2000 and 2005 • Prices have continued to fall, especially laptop prices Low Cost – defining aspect of competition • Most important advertising in newspapers circulars Chinese imports continue to grow • leading computer equipment importer to the U.S. • From $11.9 billion (2002) to 29.5 billion (2004) +147.9% • Lenovo, a chinese company, bought IBM‘s PC division in early 2005 Municipal wireless infrastructure drives notebook sales • 100+ cities implementing wireless infrastructure • 1000+/- cities working on plans for wireless Internet networks

  16. Industry – US Home Computer market forecast

  17. Share Buyback • YTD haverepurchased 138 million shares • More than 3x the stock options Dell expect to grant for the full year • Plan to spend at least $1.7 billion in Q4 • Will continue in the future, because Dell has a high Free Cash Flow, but very few investment opportunities OR Dell will start to pay dividends

  18. SWOT – a overview S W • Single source suppliers • Low R&D spending • Poor customer service • Problems in China • Leading market position • Notable clientele (large companies, state goverments) • Superior business model • Strong operating performance • Cash Cow • No traditional pension plans • Partnership with Microsoft(creating single tool managing hardware and software) • INDUSTRY • Growth in the digital color printer maket • Sale of IBM‘s PC Business to Lenovo (Europe/US) • Trend to more modular, standard products and clusters of less expensive machines (server&storage) • COMPANY • Printer Replacement business • Expansion of product portfolio (consumer electronics) • International Expansion • Entering new markets through partnership O • INDUSTRY • Decreasing PC prices • Desktops revenues will decrease heaviley until 2010 • Porter‘s five forces: - High Industry Rivalry - High Bargaining Power of Buyer • New CEO at HP -> cost reducing • Sale of IBM‘s PC Business to Lenovo (Asia) • Asian „No-Name“ producer • Increasing component prices T

  19. Competitors

  20. Stock Facts • Share price: $30.15 (52-Week range $28.62-$42.57) • Market cap: $72.29B • Trailing P/E: 23.32 • Forward P/E (fye 28-Jan-07):16.94 • Dell has never paid a dividend • Sector: Technology • Industry: Personal Computers • % held by Insiders: 9.85% • % held by Institutions: 65.5% • Ticker: DELL Source: Yahoo!Finance 11/30/05

  21. Stock Performance last 5 years

  22. Stock Performance last 2 years vs Competitors Vs: Hewlett Packard, IBM, Gateway

  23. Valuation - Beta

  24. Valuation – 3 Scenarios • Verification of Forecast and Assumptions of Segments by: • Calculating ratios • Computing Implied Growth rates of Geographical segments • Reviewing sales development

  25. Valuation – sensitivity analysis (normal)

  26. RECOMMENDATION - Considerations Source: Yahoo!Finance 11/30/05

  27. RECOMMENDATION - SELL SELL the entire position of Dell shares (500) • DCF only slightly above actual share price • High level of uncertainty about Dell futures • Diversification of product portfolio and further expansion outside the US CAN be successful, but it MUST be successful to maintain high growth rates • No guidance of the company for next year • Still a growing company, but the high growth rates of the past are improbable • If we follow our investment approach, there are better companies to own

  28. Question & Comments

More Related