Wednesday, April 26, 2006

DELL to pay the ultimate price

AMD now firmly commands the high end of the server and desktop. DELL, a pure Intel vendor, is thus pushed to the ultra low end. Dell is selling Pentium 4 PCes with 19inch LCD for $399, Celeron PC with 19inch LCD for $349, and Intel notebooks at $399. It will be very hard for DELL to make revenue and profit numbers doing such ultra low end stuff. In comparison, HP sells future proof PCes without monitors for $599.

*) Intel is slashing prices across the board. Now, anyone can get Intel dirt cheap. This neutralizes advantages DELL had over competitors in terms of special Intel pricing.

*) Intel's hyping of the Conroe will create larger Osborne effect on current Intel CPUs as we get closer to the Conroe launch date. This will affect all DELL PC/Server products.

*) Once Conroe is launched in Q3, the limited availability of the Conroe chip will stop DELL's sales cold as people wait for Intel to ramp up production. The projected Conroe volume is 10% in 3Q06, 20% in 4Q06 and 40% in 1Q07.

*) 68% of DELL's business comes from US corporate market. Intel's hyping of the vPro will hurt DELL's sales immediately as vPro stickers won't be available till 3Q06.

*) DELL's direct sale business model is in question. If it's so good, why is DELL's market share of US consumer market so small? (14% of Dell's 2005 revenue)

*) DELL is already losing unit share.

*) AMD has readied next generation chips to frag Conroe.

*) AMD, HP and NVIDIA are working together to penetrate the corporate client market.

*) DELL's balance sheet is terrible. DELL has only $4.1 billion net asset but $60 billion market cap. DELL's valuation is at 15x bookvalue. DELL can't endure three bad quarters.

*) The collapse of DELL will also lead to a quicker collapse of Intel.

25 Comments:

Anonymous Anonymous said...

Interesting analysis. Where can we find out about the next gen chips AMD is lining up for Q3?

Cheers

10:15 AM, April 26, 2006  
Anonymous Anonymous said...

I'd agree with what you said except for one.

I think your a little bit too optimistic about DELL and Intel falling after a few bad quarters!

DELL has $10 billion of cash on hand, little debt and generates (now) alot of free cash flow. Even if it has its earnings wiped out, it could live on its cash for a while and could easily sell more debt. If DELL wanted (was forced) to, it could turn around on a dime. But it doesn't, so obviously it knows something we don't?

Intel on the other hand is alot worst off. But I think that it will take alot more than 3 or 4 quarters before its in serious trouble.

But being an AMD shareholder, I really do hope I'm wrong and your right!

11:05 AM, April 26, 2006  
Anonymous Anonymous said...

I'm curious as well what information you may have about the next gen chips from AMD. You sound clearly positive that this chip will be a better chip than Conroe.

I like your analysis.

11:29 AM, April 26, 2006  
Blogger Sharikou, Ph. D. said...

Jeach!, your comment shows how easy one can be deceived by a casual glance at DELL's stats. Take a deeper look at DELL's balance sheet:

Cash+investment+receivables: $14.5 billion

So far so good? But look at the current bills DELL has to pay: $15.927 billion. DELL is $1.5 billion short paying its bills.

Now, the only thing that keeps DELL from filing bankruptcy is the $2.6 other current assets. I was told this is unsecured loans purchased from Dell Financial Services. This $2.6 billion makes DELL barely above water.

Look at it from another perspective. DELL's net asset is only $4.1 billion, of that, $2 billion is property and plant, $0.38 is other. Leaving $1.8 billion liquid assets.

A couple of bad quarters, you get an Enron.

11:39 AM, April 26, 2006  
Anonymous Anonymous said...

Alright, I have to admit that I'm in shock!!

How can a company which was the darling of Wall Street for so long have $10 billion in accounts payable ($15 billion in current iabilities)?

"Current Liabilities", as in payable within a year or payable some time during the next few years?

We need some more analysys here!

So you stated that 50% of DELL's revenues and 70% of its earnings come from corporate america.

What is DELL's market share of corporate america right now?

We can expect (hope) HP, Lenovo, Gateway, etc will eat away at this market at a rate of 1% to 1.5% per quarter.

So for each 1% of market share loss how much revenues and earnings does DELL loose?

If anyone knows, please post them... I'll try to get the answer myself too.

12:58 PM, April 26, 2006  
Blogger Sharikou, Ph. D. said...

Current liabilities are due within the current fiscal year. I think DELL owns the lion share of US corporate market. But I don't have the mkt share numbers.

Regarding the $2.6 other current assets, I read from someone's posting that it was loans from DFS. But I have not verified it one way or the other.

1:51 PM, April 26, 2006  
Anonymous Anonymous said...

Sharikou, if Dell is in such a dire straight as you pictured, then why are they not trying to get out of it instead of continuing on the course toward the precipice? In terms of billions of dollars, their balance sheet doesn't look much different in the last three quarters, although recent quarters look a little worse than the previous ones. We all know that Dell stock is going down, but so is AMD's.

3:25 PM, April 26, 2006  
Anonymous Anonymous said...

because if dell switches to AMD, it will certainly be a bad news for intel. i doubt intel would collaspe even if dell decided to go AMD, but it would be a serious blow to them...

that's why paul had to call mike about dell's merciful 49% XD

4:28 PM, April 26, 2006  
Anonymous Anonymous said...

If Intel collapses will that not give AMD a monopoly and if they do have a monopoly how will that affect th consumer going forward?

10:17 PM, April 26, 2006  
Anonymous Anonymous said...

Actually, AMD's stock just rose, again, for the 11th time in 13th quarters.

http://www.theinquirer.net/?article=31302

5:25 AM, April 27, 2006  
Anonymous Anonymous said...

Odds are that during Intel's collapse, IBM would move back into the x86 segment, Via would expand their production and maybe even ATI and NVIDIA would take up CPU design. So, when Intel did collapse, AMD would probably end up as market leaders, but it'd be as leaders of a far more open market than what we currently have.

5:57 AM, April 27, 2006  
Anonymous Anonymous said...

Intel isn't going to collapse overnight, leaving AMD as the only CPU manufacturer. AMD will get a larger marketshare, but Intel will still be around. And even if AMD reaches the status of a monopoly, I'd rather it was an AMD monopoly than an Intel one, IMHO.

6:32 AM, April 27, 2006  
Anonymous Anonymous said...

I believe that conroe will be competitive, just like D805 is competive at present price. The leading processor in 9 months maybe an AMD but intel got volume and some tricks. Dell cannot abandone intel fully because AMD cannot responde to all that demand, and will be a blow to Intel.

10:39 AM, April 27, 2006  
Anonymous Anonymous said...

how do you come up with those production numbers?

12:37 PM, April 27, 2006  
Blogger Sharikou, Ph. D. said...

how do you come up with those production numbers?

It was in the news.

12:49 PM, April 27, 2006  
Anonymous Anonymous said...

"I think they are going to once they find out that Conroe's were blowing out a lot of hot air in terms of performance"

But all the performance indicators are that Conroe is good and AM2 is so-so at present, so how can you say that ?

12:57 PM, April 27, 2006  
Blogger Eddie said...

Dell is not going bankrupt: very simple: Most of the current liabilities Dell has must be bills to pay Intel for processors.

Thus, Intel won't demand the payment of those bills unless Dell goes AMD.

So, business as usual: Dell 100% Intel, dancing the death spiral toghether 'till the end.

(todospara1/chicagraf0

1:10 PM, April 27, 2006  
Blogger Sharikou, Ph. D. said...

Dell is not going bankrupt: very simple: Most of the current liabilities Dell has must be bills to pay Intel for processors.


Impossible. Look at Intel's balance sheet, only $5 billion accounts receivable and other current assets. DELL may owe Intel a billion or two, but no more than that.

1:14 PM, April 27, 2006  
Anonymous Anonymous said...

how much of current liabilities is simply deferred revenue ???

how much of other assets is really cash ???

both answers very easy to find in SEC reports

8:15 PM, April 27, 2006  
Anonymous Anonymous said...

The idea that Dell or Intel will go bankrupt in the near future is simply laughable. It takes years of losses before a company is even close to bankruptcy. Intel has been posting a profit for awhile now (not sure about Dell), and last I checked, a company actually needs to lose money to go bankrupt. :)

6:18 PM, May 01, 2006  
Blogger Sharikou, Ph. D. said...

The idea that Dell or Intel will go bankrupt in the near future is simply laughable.

Intel may last a while. But DELL is different, DELL has only $4.1 billion net assets, of that only $1.8 billion is liquid. When Enron went BK, it still had $9 billion asset. For DELL to go BK, all it needs is two bad quarters.

10:34 PM, May 01, 2006  
Anonymous Anonymous said...

It is absurd to think Dell would OWE Intel 5 Billion for anything. Dell's business model allows for Dell to get paid before it pays for the components it uses. At most it has a few days inventory on hand. Intel actually pays Dell millions each year to keep them as thier biggest customer. No way in hell dell would have 5 billion in payables to Intel. You know how long it would take to sell that many chips? Dell is not going lock in a price on chips when the price declines daily.

You think a couple of bad quarters will cause Dell to go bankrupt? That's about the dumbest thing I have read yet. Even a few bad quarters or years even still creates a revenue stream. Even if they give a lot of market share back, they get paid for their products BEFORE they have to pay for them.

You're lowering your credibility when you make such irresponisble assertions.

1:20 PM, May 16, 2006  
Anonymous Anonymous said...

Would there not also be cash sales coming in over the period they have to pay the vendors
Also could they not push out the vendors if they wanted to.
I look at the cash statement for the quarter end Feb 06 and I see cash flow from op was $1.58B
Free cash flow was $1.128B
that doesn't look like a company on the verge of bankruptcy

11:33 PM, May 17, 2006  
Anonymous Anonymous said...

cached benchmark pdf now unavailable

10:33 AM, May 20, 2006  
Blogger JimmytheGeek said...

The Osborne effect is...in effect. We're delaying a big purchase because of the reduced power consumption Conroe promises. We do a big purchase once a year and it would be lame to pay for extra juice for a bunch of machines at once. P4s are passe...

Nice analysis. I don't know what AMD's counterpunch for Conroe is, but an Intel guy I saw really seemed to believe Intel was back on top with this summer's releases.

10:16 AM, June 09, 2006  

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