Sunday, September 28, 2008

Dell Analysis

Let us look at Dell's business: From 10-K.

Dell listens to customers and delivers innovative technology and services they trust and value. As a leading technology company, we offer a broad range of product categories, including desktop PCs, servers and networking products, storage, mobility products, software and peripherals, and services. According to IDC, we are the number one supplier of personal computer systems in the United States, and the number two supplier worldwide.

Our core business strategy is built around our direct customer model, relevant technologies and solutions, and highly efficient manufacturing and logistics; and we are expanding that core strategy by adding new distribution channels to reach even more commercial customers and individual consumers around the world. Using this strategy, we strive to provide the best possible customer experience by offering superior value; high-quality, relevant technology; customized systems and services; superior service and support; and differentiated products and services that are easy to buy and use. Historically, our growth has been driven organically from our core businesses. Recently, we have begun to pursue a targeted acquisition strategy designed to augment select areas of our business with more products, services, and technology that our customers value. For example, with our recent acquisition of EqualLogic, Inc., a leading provider of high-performance storage area network solutions, and the subsequent expansion of Dell’s PartnerDirect channel, we are ready to deliver customers an easier and more affordable solution for storing and processing data.

As a result of the intensely competitive environment, we lost 1.9 points of share during calendar 2007. We lost share, both in the U.S. and internationally, as our growth did not meet overall personal computer systems growth. This was mainly due to intense competitive pressure in our U.S. Consumer business, particularly in lower priced desktops and notebooks, as well as a slight decline in our worldwide desktop shipments (compared to 5% worldwide industry growth in desktops). At the end of calendar 2007, we remained the number one supplier of personal computer systems in the U.S. and the number two supplier worldwide.

In light of this, let us look at Dell's bottom line.

Dell's cash flow from operating activities has a stable/declining trend.

CashFlow (millions) Year

3,949 2008

3,969 2007

4,751 2006

5,821 2005

4,064 2004

In the current fiscal year, Dell's cash flow has continued to deteriorate compared to the previous year.

The primary reason for the decline is reduction in margin over the last two years compared to prior years because of intense competition. This year, the margin is even lower compared to the prior two years.

While Dell is a good franchise and will continue to have a world wide presence in the near term, the cash flow may take some hits. At the current prices, Dell doesnt look like a good investment when compared to some of the other opportunities available in the market.

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