Published on June 19, 2007
McIntire Investment Institute: McIntire Investment Institute Short Pitch – DELL Lawrence Lim Debola Badejo Slide2: Dell Inc. produces a range of computer systems and services Markets and sells its products and services directly to its customers Geographic segments: the Americas; Europe, Middle East and Africa, and Asia Pacific-Japan. Recent Acquisition – Alienware Corp (2006) Introduction Slide3: 1988 - IPO 8.50/share 1997 - $1000/share pre-split basis 2001 - No.1 in global market share 2000 – Bubble burst, upward trend continued 2006 – Made History, shipped 10 million systems in Q1 Brief History Slide4: Slide5: Slide6: Slide7: Slide8: Why do you Dell performed so well? Dell Magic Slide9: 'Ultra-efficient supply-chain management' - Businessweek Direct sales Elimination of Middle man Just-in-time inventory Custom built systems Minimal service centers Beat competition with business model Lowest Price Strategy Slide10: Direct Sales Model failing SEC Investigation Delayed SEC filing Q206 Decreasing global market share Management issues in Asia Potential de-listing from Nasdaq Why Short Dell? Slide11: Deteriorating products and customer service Inventory increasing Accounts receivable increasing Failed product line – MP3 players TV products may soon follow suit Why Short Dell? Slide12: Why would such a 'great' business model fail? Short Theses Slide13: Short Theses -Direct Sales PCs are getting more powerful Competition eroding build-to-order advantage No longer has price advantage over competitors Customer service deteriorated after moving call center to India Accounts receivables increasing – adverse selection problem Inventory increasing – failing supply chain model Slide14: Slide15: Slide16: SEC Investigation SEC looking into Dell’s customer recognition model Upward trend after 9/11 in stark contrast to industry competitors Earnings could be reduced Potential de-listing from NASDAQ to pink sheets Slide17: Competition Organic growth hampered by Lenovo’s price cutting HPQ and CDWC partnership taking market share by increasing pricing advantage and delivery speed Failed to secure the repurchase of new batches of computers with Windows Vista from current customers Slide18: Customer Service Customers brought around the loop Deteriorating customer service prompted management to invest $150 million into customer service Corporate offices phasing out 'helpdesk' sectors as economy slows in 2007 CDWC offering next-business-day-on-site customer service Slide19: Deteriorating Global Market Share Market share dropped from 16.9 to 16.5% HPQ and Acer market share increased by 14.9% and 5% respectively Lenovo - 20% of Asia market share, up 1.6% from 2005 Slide20: Management William Amelio (former Dell co-manager; current Lenovo vice-president services for Asia) David Miller (former Dell president, China) Sotaro Amano (former Dell executive, Japan) Gerry Smith (former vice president of Dell’s Singapore design center and display units; current Lenovo Global Supply Chain Director) Kenneth DiPietro (former Dell human resources executive; current Head of Human Resources at Lenovo) Slide21: Battery Crisis! Reputation damaged Dell increased the number of batteries recalled to 4.2 million units from 4.1 million Dell failed quality control exercise Slide22: VAR Simon Yates, Research Analyst, Forrester Research: HPQ, Lenovo top DELL in innovation and product quality SMB care more about pricing before product quality DELL advantage fading; Competition lowering prices Project PC Sales slowdown Q4 2006 Slide23: Slide24: Slide25: VAR Jean-Claude Homawoo, Industry Analyst, Arrow Electronics: Dell’s forays into AMD a sign of deterioration of core direct sale model Todd Johnson, Senior Research Manager, Gerson Lehrman Group: Corporations increasingly using CDWC products Companies have not renewed contracts Slide26: Risks Windows Vista launching ahead of schedule Despite Vista release delays, Dell has been able to generate nearly $4 billion in free cash flow. That number generates $30 in intrinsic value when plugged into a DCF model. Dell needs to only grow at 3% to achieve that value. Investigations results expected and factored into price Mild correction in Dell’s restatement of earnings Slide27: The End Questions?