Novice Investing - Dell Exodus

Date: Friday 29th 2008f August 2008 12:31:12 PM

Dell Exodus - 09/07/2006

By: Novice Investing Staff

Going back to an article a year ago about ten reasons to sell, you can apply this situation with Dell Inc. (DELL). We will discuss reason number eight, which is : Exodus of Talented Employees. As mentioned, Employees are a company's greatest asset. Yet, it is unquantifiable in the balance sheet. If you buy electronics from the rude store customer service, will it affect your decision to buy? Yes, of course. Some employees are so good at their job that other companies will start sniffing around and offer them a new job.

So, what happened at Dell? Thestreet.com reported that more than half a dozen of Dell's executives are jumping ship to rival Lenovo. The list includes:
David Miller, former president of Dell China. Sotaro Amano, former corporate director of Dell Japan Gerry Smith, former Dell business unit and design center Singapore David Schmoock, former Dell vice president marketing Asia Pacific Christopher Askew, former Dell vice president service Asia Pacific
The list might grew longer next month or next year. But, you got the idea. Lenovo current CEO, Bill Amelio, was himself from Dell. Thus, it is no wonder that the five persons mentioned above followed Mr. Amelio to Lenovo. After all, we are a social being, meaning we prefer to work with somebody rather than with something. Those people did not work for Dell, but rather for their boss. This works the same way as those customers that refuse to shop at stores with rowdy customer services. Or those customers that make repeat purchase at stores with smiling representative. Essentially, those newly hired at Lenovo are forming their own Dell's alumni back at the company's headquarter. And they have advantage of fighting Dell. They used to be Dell anyway. What is a scarier thought than that?

While we have no way of quantifying these employee loss to Dell, you need to be aware of this fact when evaluating Dell as investment candidates. On the surface, balance sheet looks clean and profit estimate looks good. Dell has around $ 11 Billion in positive net cash ($ 4.84 per share) and is not

expected to post a loss anytime soon. It is also one of the most efficient PC producer in the world. However, this key defection may put Dell's profit projection in jeopardy. Thus, when evaluating Dell's fair value, you need to take into accounts that Dell's failure rate may have just increased by these defections.

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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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