Thursday, February 16, 2006

DELL: the real story

DELL just reported results for the period of 14 weeks from Oct 29, 2005 to Feb 3, 2006 with revenue of $15.2 billion and EPS of $0.43, beating average estimate of $0.41. Sounds good?

First, wait a minute, in last year, the reporting period was from Oct 30, 2004, to January 28, 2005, 13 weeks. There is one extra week for the current period, there should be a 1/13 adjustment for a fair comparision. The burning question is: did all those analysts add an extra week when estimating DELL's results? Let's adjust DELL's revenue, and let's compare DELL's results year over year, and quarterly sequential.

Real growth was computed below as:

(Revenue_2005/14 - Revenue_2004/13) / Revenue_2004/13 - 1 = Revenue_2005/Revenue_2004* 13/14 -1

Segment2005 Q 2006 QPrev Q Adjusted 06 RevReported GrowthReal Y/Y
Real Q/Q Growth
Desktop$5.6 b$5.6 b$5.1 b$5.1 b1%-7.14%0%
Server$1.3 b$1.4 b$1.4b$1.3 b10%0%-7%
Mobile$3.1 b$3.8 b$3.6$3.5222%13.82%-2.2%

According to IDC, 4Q05 global PC market grew 17.1% year/year. DELL is substantially below market growth in every sector. In fact, its desktop revenue decreased 7% year/year, and server showed 0 growth year/year. When we compare Q/Q results, the situation is even worse, the fourth quarter was a holiday season with 8% seasonal growth, yet DELL showed flat or negative result Q/Q for all segements. DELL's sequential decline pattern matched that of INTEL's declining pattern perfectly.

Now, look at DELL's balance sheet: it has $9.06 billion cash and short term investments, but $9.84 billion of bills to pay. DELL's stock holder equity dropped from $4.8 billion to $4.1 billion in just three months.

$4.1 billion net asset and $75 billion market cap, with revenue dropping year/year on two its main segments.

I predicted that DELL will the next Enron, mark my word!


Anonymous Anonymous said...

Not to mention the way Mikey has been propping up EPS for years by buying up stock left and right. Another interesting thing to look at would be what Dell's EPS would be without all the share repurchases.

Good work.

2:49 PM, February 16, 2006  
Anonymous Anonymous said...

Brilliant catch and analysis.

3:00 PM, February 16, 2006  
Anonymous Anonymous said...

You are comparing Dell revenues with IDC shipments. Did you read the vendor comments in the IDC link? I have copied and pasted them. The 14 weeks probably added 2-3 pts of growth for Dell in the qtr. Corporations buy on quarterly budgets and first week in Feb is a light consumer period. Shareholders equity goes down when you buy back stock. It's called returning capital to shareholders. They can continue taking share and have excess cashflow. Enron took exta cash flow from trading and reinvested it in horrible, capital intensive International power projects that required additional debt which they hid.

Dell – Dell remained the top PC vendor and boosted its share of shipments to 17.2% from 16.8% a year ago with year-on-year growth of more than 20%. The company had strong growth across regions and form factors with particularly rapid growth in EMEA, Asia/Pacific, and Latin America driving overall international growth above 37% year on year and growth of more than 50% in worldwide Portable PC shipments.

HP – HP also had a solid quarter with 15.7% of worldwide shipments and growth of 15.8% year on year. Growth in EMEA accelerated to almost 25% in 4Q05 from single-digits in the first quarter while operations in Asia/Pacific (excluding Japan) continued to expand at more than 30% year on year.

4:24 PM, February 16, 2006  
Blogger Sharikou, Ph. D said...

You DELL believers are amusing, DELL added an additional week, and you are saying that extra week was actually a dead week. Compare DELL's previous quarter with this quarter, you see very little change, this indicates that DELL's business are quite evenly distributed, without wild "weekality" you want to invent.

4:43 PM, February 16, 2006  
Blogger Sharikou, Ph. D said...

From DELL's unit increase (reported by IDC) and revenue decline, we can see that DELL is being reduced to the ultra low end of the market.

4:45 PM, February 16, 2006  
Anonymous Anonymous said...

DELL was definitely lying in their CC. They claimed that the extra week eding Feb 3 only contributed 2-3% to revenue, or only 40% of the average week. So why was this week so deifferent? What about the week after that?

7:47 PM, February 16, 2006  
Anonymous Anonymous said...

One analyst was suspicious about DELL's accounting on the extra week. Especially the Operating expensive from Q3 to Q4 not increasing proportionally with the extra week.

8:15 PM, February 16, 2006  
Anonymous Anonymous said...

Yup...DELL is lying ...

9:37 PM, February 16, 2006  
Anonymous Anonymous said...

In Asia Pacific where I am, (India) I can truly state that HP rules. Only for the sole fact that they have showrooms where Indians prefer to look before selecting. But Dell does not have one showroomas of now in India.. Wonder when they are going to launch it? No wonder HP and IBM 9read Lenovo) are aggressive and actually have something to crow about in sales. HP is numero uno in sales in India, while it is Lenovo in China. Dell is a poor third in the China, (according to estimates) while it is way below local resellers in India. AMD does indeed sell more in the assembled market than Intel. For every 6AMD's there is about 1 Intel sold. That's the ratio I obtained from the grey market. t remains to be seen how Conrad would shape up, otherwise Dell is indeed history. Oh! by the way, Dell is now looking for dealers in India.. But the market is already tight and there are very few takers for Dell.

2:33 AM, March 29, 2006  

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