Dell Inc.Dell Inc.

Mary VossMary Voss

November 16, 2004November 16, 2004

RecommendationRecommendationRecommendation: HoldRecommendation: HoldCurrently, hold 500 shares at the market price of 40.70Currently, hold 500 shares at the market price of 40.70Market Value of 20350.Market Value of 20350.We purchased these shares on December 10,1999 for We purchased these shares on December 10,1999 for 41.7541.75Cost Basis of 20875.Cost Basis of 20875.Dell has never paid a dividendDell has never paid a dividendThe Financial Analysis shows that Dell might be slightly The Financial Analysis shows that Dell might be slightly overvalued in the market. However, the company overvalued in the market. However, the company continues to grow and steal market sharecontinues to grow and steal market shareAdditionally, the overall economy is heating up, which Additionally, the overall economy is heating up, which means more business for Dellmeans more business for Dell

Dell Inc.Dell Inc.Originally incorporated in 1984 in Texas and Originally incorporated in 1984 in Texas and then incorporated in 1987 in Delawarethen incorporated in 1987 in DelawareCorporate headquarters located in Round Rock, Corporate headquarters located in Round Rock, TexasTexasSells computers, peripheral equipment, and Sells computers, peripheral equipment, and services worldwide services worldwide Its manufacturing facilities are located in: Austin, Its manufacturing facilities are located in: Austin, Texas; Eldorado do Sul, Brazil; Nashville, Texas; Eldorado do Sul, Brazil; Nashville, Tennessee; Limerick, Ireland; Penang, Malaysia; Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen, China.and Xiamen, China.Customers: From large corporate and Customers: From large corporate and government to individual consumersgovernment to individual consumers53,000 employees worldwide53,000 employees worldwide

ProductsProductsNotebook ComputersNotebook Computers:: The Latitude and the Inspiron The Latitude and the Inspiron line of notebooksline of notebooks- Number one in the U.S. and number two worldwide in shipments - Number one in the U.S. and number two worldwide in shipments 2003.2003.

Desktop Computer Systems: TheDesktop Computer Systems: The OptiPlex and The OptiPlex and The Dimension desktopsDimension desktops-Number one in the U.S. and worldwide in desktop shipments in -Number one in the U.S. and worldwide in desktop shipments in 20032003

Printing and Imaging Systems:Printing and Imaging Systems: consumer inkjets to consumer inkjets to large workgroup laserslarge workgroup lasersSoftware and Peripheral ProductsSoftware and Peripheral Products- - Includes memory, digital cameras, projectors, scanners LCD Includes memory, digital cameras, projectors, scanners LCD televisions, and MP3 playerstelevisions, and MP3 players

Enterprise ProductsEnterprise Products

Storage:Storage: Dell/ EMC systems and Dell’s PowerVaultDell/ EMC systems and Dell’s PowerVault

- Net revenue for Dell’s PowerVault and Dell/ EMC systems - Net revenue for Dell’s PowerVault and Dell/ EMC systems grew 58% during fiscal 2004grew 58% during fiscal 2004

Servers:Servers: Dell’s standards-based PowerEdge line of Dell’s standards-based PowerEdge line of servers servers

-Dell ranks number one in the U.S. -Dell ranks number one in the U.S.

Workstations:Workstations: Dell Precision desktop workstation Dell Precision desktop workstation or mobile workstation.or mobile workstation.

Networking Products:Networking Products: Dell’s PowerConnect Dell’s PowerConnect switchesswitches

ServicesServices

Managed ServicesManaged Services

Professional Services Professional Services

Deployment Services Deployment Services

Support ServicesSupport Services

Training and Certification ServicesTraining and Certification Services

Dell Financial Services L.P. Dell Financial Services L.P.

- A joint venture between Dell and CITI - A joint venture between Dell and CITI Group, Inc in USGroup, Inc in US

Dell’s Direct Model Dell’s Direct Model

Most efficient path to the consumerMost efficient path to the consumer

Single point of AccountabilitySingle point of Accountability

Build-to-orderBuild-to-order

Low-cost leaderLow-cost leader

– Efficient supply chainEfficient supply chain

Standards-Based TechnologyStandards-Based Technology

Business StrategiesBusiness Strategies

Main Advantage: Low Cost LeadershipMain Advantage: Low Cost Leadership- allows Dell to maximize market share- allows Dell to maximize market share

Product DiversificationProduct Diversification- trying to bring its efficient business model to - trying to bring its efficient business model to other product lines such as printersother product lines such as printers- sell over 5 million printers this year - sell over 5 million printers this year

Global GrowthGlobal Growth- plans on expanding market share in Asia, - plans on expanding market share in Asia, especially Chinaespecially China

Industry OutlookIndustry Outlook

Recent high growth rates was a result of a Recent high growth rates was a result of a depressed market over the past yearsdepressed market over the past years

Currently, Global consumer PC demand is Currently, Global consumer PC demand is relatively high, but that is expected to relatively high, but that is expected to decrease after 2005decrease after 2005

Corporate demand expected to stay strongCorporate demand expected to stay strong

Industry TrendsIndustry Trends

SIC 3571 - Electronic computers (primary)SIC 3571 - Electronic computers (primary)

Frequent acquisitions, joint ventures and Frequent acquisitions, joint ventures and alliancesalliances

Component Construction outsourcing for Component Construction outsourcing for cost-effectivenesscost-effectiveness

Increase in offering integration and Increase in offering integration and support servicessupport services

Industry TrendsIndustry Trends

Bitter price warsBitter price wars

Price Sensitive ConsumersPrice Sensitive Consumers

Small product differentiationSmall product differentiation

Escalating market share raceEscalating market share race

Dell and HP lead the consumer PC marketDell and HP lead the consumer PC market– Dell uses direct sales modelDell uses direct sales model– HP sells through retail channelsHP sells through retail channels

Porter’s Five ForcesPorter’s Five Forces

Bargaining Power of Buyer: HighBargaining Power of Buyer: HighIndustry Rivalry: HighIndustry Rivalry: High- Price and Market Share Wars- Price and Market Share Wars Bargaining Power of Suppliers: ModerateBargaining Power of Suppliers: ModerateThreat of New Entrants: LowThreat of New Entrants: Low- High Economies of Scale - High Economies of Scale - Profit Margin on PCs decreasing- Profit Margin on PCs decreasingThreat of Substitutes: LowThreat of Substitutes: Low- Apple computers, high switching costs- Apple computers, high switching costs

Dell’s CompetitorsDell’s Competitors

Main competitors: IBM, H-P, and GatewayMain competitors: IBM, H-P, and Gateway

CompetitorsCompetitors

All companies have seen an increase in revenue over its past All companies have seen an increase in revenue over its past 3rd quarter3rd quarter- Dell the most- Dell the mostHP did not meet its own forecast for its third QuarterHP did not meet its own forecast for its third QuarterDell entered printer market to hurt H-PDell entered printer market to hurt H-PIndustry P/E: 34.11, Sector P/E: 34.58 (ValuEngine report)Industry P/E: 34.11, Sector P/E: 34.58 (ValuEngine report)

DELL HPQ IBM GTW

Market Cap 101.61B 58.65B 159.68B 2.22B

P/E 33.64 18.25 20.4 N/A

EPS (ttm) 1.21 1.064 4.703 -1.931

Revenue (ttm) 47.26B 78.37B 94.74B 3.50B

Profit Margin (ttm) 6.61% 4.17% 8.56% -19.23%

Dell’s Market ShareDell’s Market Share

Dell’s Stock PriceDell’s Stock Price

Company PerformanceCompany Performance

2004 Fiscal Year:2004 Fiscal Year:- Net Income increased 25% and 70% prior year- Net Income increased 25% and 70% prior year- Revenue increase 17% up from a 14% increase the - Revenue increase 17% up from a 14% increase the year beforeyear before- Earning per Share were:- Earning per Share were:1.03 in 2004, .82 in 2003, and .48 in 20021.03 in 2004, .82 in 2003, and .48 in 2002

2005 Fiscal Year looks very promising2005 Fiscal Year looks very promising- Revenues rose 19% and net income rose 25% overall- Revenues rose 19% and net income rose 25% overall

Company predicts to become a $60 billion Company predicts to become a $60 billion revenue company sometime in 2006revenue company sometime in 2006

Third Quarter ResultsThird Quarter Results

In the third quarter:In the third quarter:- Earned $846 million compared with $677 million a year - Earned $846 million compared with $677 million a year earlierearlier- 33 cents a share from 26 cents a share a year ago- 33 cents a share from 26 cents a share a year ago

Revenue rose 18 percent to $12.5 billion for the Revenue rose 18 percent to $12.5 billion for the third quarter up from $10.6 billion the year beforethird quarter up from $10.6 billion the year beforeFor the third quarter:For the third quarter:- 27 percent growth in Europe, the Middle East and Africa- 27 percent growth in Europe, the Middle East and Africa- 25 percent growth by Asia Pacific region and Japan- 25 percent growth by Asia Pacific region and Japan- 20 percent growth by United States business customers- 20 percent growth by United States business customers

Dell’s RevenueDell’s Revenue

Sales outside the U.S. accounted for Sales outside the U.S. accounted for approximately 36% of Dell’s net revenue in fiscal approximately 36% of Dell’s net revenue in fiscal 2004 2004

Revenue Breakdown:Revenue Breakdown:

Americas – Business 21,888,000,000Americas – Business 21,888,000,000

Americas – Consumer 6,715,000,000Americas – Consumer 6,715,000,000

Europe 8,495,000,000Europe 8,495,000,000

Asia Pacific-Japan Asia Pacific-Japan 4,346,000,0004,346,000,000

Total Revenue Total Revenue 41,444,000,00041,444,000,000

Financial AnalysisFinancial Analysis

The P/E ApproachThe P/E Approach

- Price of $42.21 by end of January; P/E of 32- Price of $42.21 by end of January; P/E of 32

- P/E of 20: price is $26.38- P/E of 20: price is $26.38

- P/E of 40: price is $52.77- P/E of 40: price is $52.77

DCFDCF

- Results in a price of $31.85- Results in a price of $31.85

Look at Spreadsheet Look at Spreadsheet

Significant DevelopmentsSignificant Developments

Growth and ExpansionGrowth and Expansion- New U.S. manufacturing facility in North Carolina New U.S. manufacturing facility in North Carolina - New customer contact center in Oklahoma New customer contact center in Oklahoma - New distribution center in Ohio for Dell's growing New distribution center in Ohio for Dell's growing

printing and computer peripherals business printing and computer peripherals business

Services contractsServices contracts- Three year multimillion-dollar contract from Honeywell - Three year multimillion-dollar contract from Honeywell to manage its 16,000 desktop and notebook computers to manage its 16,000 desktop and notebook computers in Europe in Europe

Strategic Alliance with MicrosoftStrategic Alliance with Microsoft- Unveiled new software that updates Dell servers at the - Unveiled new software that updates Dell servers at the hardware, software, and applications levels with “one hardware, software, and applications levels with “one mouse-click”mouse-click”

Questions and CommentsQuestions and Comments