Dell Inc. Mary Voss November 16, 2004

Recommendation Recommendation: Hold Currently, hold 500 shares at the market price of Market Value of We purchased these shares on December 10,1999 for Cost Basis of Dell has never paid a dividend The Financial Analysis shows that Dell might be slightly overvalued in the market. However, the company continues to grow and steal market share Additionally, the overall economy is heating up, which means more business for Dell

Dell Inc. Originally incorporated in 1984 in Texas and then incorporated in 1987 in Delaware Corporate headquarters located in Round Rock, Texas Sells computers, peripheral equipment, and services worldwide Its manufacturing facilities are located in: Austin, Texas; Eldorado do Sul, Brazil; Nashville, Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. Customers: From large corporate and government to individual consumers 53,000 employees worldwide

Products Notebook Computers: The Latitude and the Inspiron line of notebooks - Number one in the U.S. and number two worldwide in shipments Desktop Computer Systems: The OptiPlex and The Dimension desktops -Number one in the U.S. and worldwide in desktop shipments in 2003 Printing and Imaging Systems: consumer inkjets to large workgroup lasers Software and Peripheral Products - Includes memory, digital cameras, projectors, scanners LCD televisions, and MP3 players

Enterprise Products Storage: Dell/ EMC systems and Dell’s PowerVault - Net revenue for Dell’s PowerVault and Dell/ EMC systems grew 58% during fiscal 2004 Servers: Dell’s standards-based PowerEdge line of servers -Dell ranks number one in the U.S. Workstations: Dell Precision desktop workstation or mobile workstation. Networking Products: Dell’s PowerConnect switches

Services Managed Services Professional Services Deployment Services Support Services Training and Certification Services Dell Financial Services L.P. - A joint venture between Dell and CITI Group, Inc in US

Dell’s Direct Model Most efficient path to the consumer Single point of Accountability Build-to-order Low-cost leader –Efficient supply chain Standards-Based Technology

Business Strategies Main Advantage: Low Cost Leadership - allows Dell to maximize market share Product Diversification - trying to bring its efficient business model to other product lines such as printers - sell over 5 million printers this year Global Growth - plans on expanding market share in Asia, especially China

Industry Outlook Recent high growth rates was a result of a depressed market over the past years Currently, Global consumer PC demand is relatively high, but that is expected to decrease after 2005 Corporate demand expected to stay strong

Industry Trends SIC Electronic computers (primary) Frequent acquisitions, joint ventures and alliances Component Construction outsourcing for cost-effectiveness Increase in offering integration and support services

Industry Trends Bitter price wars Price Sensitive Consumers Small product differentiation Escalating market share race Dell and HP lead the consumer PC market –Dell uses direct sales model –HP sells through retail channels

Porter’s Five Forces Bargaining Power of Buyer: High Industry Rivalry: High - Price and Market Share Wars Bargaining Power of Suppliers: Moderate Bargaining Power of Suppliers: Moderate Threat of New Entrants: Low - High Economies of Scale - Profit Margin on PCs decreasing Threat of Substitutes: Low - Apple computers, high switching costs

Dell’s Competitors Main competitors: IBM, H-P, and Gateway

Competitors All companies have seen an increase in revenue over its past 3rd quarter - Dell the most HP did not meet its own forecast for its third Quarter Dell entered printer market to hurt H-P Industry P/E: 34.11, Sector P/E: (ValuEngine report) DELLHPQIBMGTW Market Cap101.61B58.65B159.68B2.22B P/E N/A EPS (ttm) Revenue (ttm)47.26B78.37B94.74B3.50B Profit Margin (ttm)6.61%4.17%8.56%-19.23%

Dell’s Market Share

Dell’s Stock Price

Company Performance 2004 Fiscal Year: - Net Income increased 25% and 70% prior year - Revenue increase 17% up from a 14% increase the year before - Earning per Share were: 1.03 in 2004,.82 in 2003, and.48 in Fiscal Year looks very promising - Revenues rose 19% and net income rose 25% overall Company predicts to become a $60 billion revenue company sometime in 2006

Third Quarter Results In the third quarter: - Earned $846 million compared with $677 million a year earlier - 33 cents a share from 26 cents a share a year ago Revenue rose 18 percent to $12.5 billion for the third quarter up from $10.6 billion the year before For the third quarter: - 27 percent growth in Europe, the Middle East and Africa - 25 percent growth by Asia Pacific region and Japan - 20 percent growth by United States business customers

Dell’s Revenue Sales outside the U.S. accounted for approximately 36% of Dell’s net revenue in fiscal 2004 Revenue Breakdown: Americas – Business 21,888,000,000 Americas – Consumer 6,715,000,000 Europe 8,495,000,000 Asia Pacific-Japan 4,346,000,000 Total Revenue 41,444,000,000

Financial Analysis The P/E Approach - Price of $42.21 by end of January; P/E of 32 - P/E of 20: price is $ P/E of 40: price is $52.77 DCF - Results in a price of $31.85 Look at Spreadsheet

Significant Developments Growth and Expansion -New U.S. manufacturing facility in North Carolina -New customer contact center in Oklahoma -New distribution center in Ohio for Dell's growing printing and computer peripherals business Services contracts - Three year multimillion-dollar contract from Honeywell to manage its 16,000 desktop and notebook computers in Europe Strategic Alliance with Microsoft - Unveiled new software that updates Dell servers at the hardware, software, and applications levels with “one mouse-click”

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