Obama bites Dell?

  • Posted: 08 May 2009 02:20 PM

    Perhaps DELL is down 12% from Monday’s close, versus AAPL’s 2% because Obama Seeks To Close Overseas Tax Loophole.

    Dell’s business model has been to label and pass through its accounts the largest possible amount of IT related product, and to extract dollars anywhere and everywhere on the way through. This is presented in its accounts as a supremely efficient operation. However, when you incorporate the contribution of suppliers, customers and taxpayers to the entire process, it’s seen to be not specially efficient, and the suppliers, customers and taxpayers are finally rebelling.

    Dell has lost subsidies from suppliers (eg Intel), is fighting to keep local taxpayer subsidies (eg read the last para here), and now about to lose the large tax deferral it enjoys by arranging for profits to arise overseas, and not remitting to the US. (Despite having $11B cash and short term investments in the accounts, Dell continually borrows in the US, most recently $500M last month, and has said in conference calls that the purpose is to continue deferring tax on overseas profits).

    Dell is apparently now recruiting a mergers and acquisitions specialist, presumably to discover new kinds of accounting smoke and mirrors to replace the old. IMO it’s 5 years too late.

    [ Edited: 08 May 2009 02:33 PM by sleepytoo ]      
  • Posted: 09 May 2009 01:33 PM #1

    The company is goner in terms of its impact on the industry. It’s the big loser among the OEMs in market share and offers nothing new in terms of technology.

    The company is on borrowed time and lives off of the spread between payables and receivables. To keep the game going the company needs to continue finding new markets to shove product on thin margins so to keep receipts ahead of payables. In other words, the company survives on revenue churn and not much else. Should revenue velocity slow (or continue to slow) in existing markets without new avenues for revenue exploitation, the company’s financial footing will implode. It’s another reason to borrow to acquire revenue.

    The company’s in a real bind. If it floats equity to acquire revenue it will debase eps and it will be the antithesis of the multi-year splurge on spending $27 billion in shareholder assets to buyback shares.

    Dell has now spent billions in shareholder assets via of share buybacks at prices much higher than the trading price today. In other words, billions of dollars of shareholder wealth have disappeared in an effort to prop up eps.

    Meanwhile, Apple continues to take share from Dell at the top end while Acer is eating the company’s low-end share for lunch.

    Acquisitions may be Dell’s only way of buying or borrowing more time.

    In the education space Apple is in the enviable position of being able to provide aggressive and attractive financing options for schools. Think about. When was the last time we heard of a US school system defaulting on its payments? In today’s taxpayer-subsidized interest-rate environment, Apple can self-finance education purchases while remaining competitive on the return on assets.

    Bye, bye Dell.

         
  • Posted: 09 May 2009 01:41 PM #2

    In its last fiscal year Dell reported revenue of about $61 billion and also reported net tangible assets at the end of the period of about $1.8 billion. Isn’t there something wrong with this picture?

         
  • Posted: 09 May 2009 06:14 PM #3

    Try looking at HPQ’s revenue / tangible assets, DT :wink:

    ($118B/$-1.3B at Y/E Oct 08))

         
  • Posted: 09 May 2009 07:52 PM #4

    I’m a step ahead. smile

    The reason for the negative net tangible assets is due to the amount of Goodwill (a non-tangible asset) and write-downs related to the EDS acquisition. That acquisition doubled HPQ’s service revenue and will quickly increase the company’s revenue, earnings and eps.

    Dell has used over $27 billion in shareholder assets to buyback shares. The company is now worth less than it has spent trying to increase eps by exhausting corporate assets in stock buybacks.

    Which has been a smarter use of cash?  Dell cannibalizing itself or HPQ expanding its reach into profitable technology services?

    HPQ’s NTA value is temporary. What’s Dell’s excuse?

         
  • Posted: 09 May 2009 10:22 PM #5

    Dell has one competitive advantage in the education space.  It is called Stoneware.

    The company is private and tiny.  Apple should scoop it up.

         
  • Posted: 09 May 2009 11:00 PM #6

    capablanca - 10 May 2009 01:22 AM

    Dell has one competitive advantage in the education space.  It is called Stoneware.

    The company is private and tiny.  Apple should scoop it up.

    Several years ago Apple acquired PowerSchool as a Student Information System. I deployed one PowerSchool installation and advised on another. The company sold PowerSchool to Pearson Education after determining it was not a core asset or activity.

    Because virtually all SIS systems are now Web-based, platform or hardware choices are no longer an issue.

         
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    Posted: 09 May 2009 11:08 PM #7

    DawnTreader - 10 May 2009 02:00 AM
    capablanca - 10 May 2009 01:22 AM

    Dell has one competitive advantage in the education space.  It is called Stoneware.

    The company is private and tiny.  Apple should scoop it up.

    Several years ago Apple acquired PowerSchool as a Student Information System. I deployed one PowerSchool installation and advised on another. The company sold PowerSchool to Pearson Education after determining it was not a core asset or activity.

    Because virtually all SIS systems are now Web-based, platform or hardware choices are no longer an issue.

    My wife used PowerSchool in the Lennox School District. It worked pretty well. Where my kids go to school, we’ve experienced TeacherWeb and Engrade with varying results.

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    “Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.”  ?Norman Vincent Peale

         
  • Posted: 10 May 2009 12:48 AM #8

    sleepytoo - 08 May 2009 05:20 PM

    Dell is apparently now recruiting a mergers and acquisitions specialist, presumably to discover new kinds of accounting smoke and mirrors to replace the old. IMO it’s 5 years too late.

    How would the acquisitions be financed? With treasury stock diluting the eps? With debt that will further erode the balance sheet?

    You and I have been tracking Dell and its financial issues for years. Watching the company’s market share numbers indicates the gig may almost be up. Buy whatever they want. It’s still a churn-based operation with a nasty day of reckoning ahead.