Novice Investing - Getting A Dell Inside

Date: Sunday 20th 2008f July 2008 12:46:13 PM

Getting A Dell Inside - 07/16/2006

By: Novice Investing Staff

Dell Inc. (DELL) is the largest PC manufacturer in the world. It has since diversified into notebooks, printers, servers and PDAs. With its share closer to its 52 week low, this company is worth a look now considering that it had been a stellar investment during the 1990s. Today, we are going to look closer into Dell's annual report.

Dell's annual report does not tell much. It is about 28 pages long. You can download it at Dell's investor relation page. Dell briefly talks about its overall financial state followed by the breakdown of business in different geographic region. No mention on how Dell expects in the future and what they will focus on. Basically, it is leaning more towards past achievement rather than future obstacles. Despite that, let's explore what Dell said on its 2006 annual report.

For your information, fiscal 2006 ends on February 2006. Dell clocks in revenue of $ 55.91 Billion in 2006, up 13.6% from 2005. Net income came in at $ 3.57 Billion ($ 1.46 per share) up 23.7% from $ 1.18 in fiscal year 2005. As a whole, unit shipment rose 19% while revenue is up 13.6%. This means that average selling price decreases by about 5% annually. This is considered good. If you are a consumer purchasing your very own PC, you may know that price falls much faster than that. Generally, after two year, the same PC will cost 50% less.

Geographically, Dell's revenue is concentrated in the US with 69% of total. Overseas revenue accounts for the rest of the 31%. While everyone is mentioning China to be big, currently, China is only the 4th largest revenue generator outside of the US. Thus, with China predicted having the world second largest PC market after the United States, it can become an even larger revenue generator for Dell. For year 2006, unit shipment grew 37% in China. Overall, revenue in the US slowed down to 11% growth while international shows a promising 31% growth.

Towards the end of 2006 annual report, Dell provides the breakdown of revenue segment for the year.

Business Segment	Revenue Contribution
Desktop PC	38%
Mobility	25%
Servers & Networking	10%
Storage	3%
Enhanced Services	9%
Software & peripherals	15%

Desktop PC now accounts for less than 40% of Dell's business. If you dig through Dell's financial four, five years ago, this segment would probably account for more than 70% of its business. Mobility is the notebook segment of Dell's business and it is the second biggest revenue contributor for Dell. Naturally, as the desktop PC is maturing, Dell's focus should be on this segment.

Software & peripherals are the next biggest revenue contributor, which we believe still holds a lot of promise. This segment includes Dell's foray into consumer electronics such as LCD TV, plasma TV, music players, wireless products, memory, digital cameras and scanners. As the population has gotten their own computers, the next logical thing for them to purchase is other computer's peripherals such as scanners and memory products. Dell is nicely placed to take advantage of this opportunity.

Finally, financial-wise, Dell is a stronger-than-average company. It spots a positive net cash of $ 11.2 Billion or $ 4.93 per share. Currently, share price is trading at around $ 22 per share. Thus, cash represents about 22.4% of Dell's entire market capitalization. Meanwhile, analyst expects a profit of $ 1.38 for next fiscal year, which is a slight decline from last year. Thus, while share price is quite low, Dell need to prove that it can grow earnings before share price can bounce back. For turnaround investors, Dell definitely needs to be on your radar screen. It might prove to be a decent investment if the share price falls low enough.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Dell Inc. (DELL) or any other securities.

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