Posts Tagged ‘Dell’

More Evidence the Approaching IT Replacement Cycle will Exceed Analysts’ Estimates

January 14th, 2010 Michael McDonough Comments off

Recently, I wrote about how Dell, among some other companies, should benefit from an approaching IT replacement cycle, that I believe is being underestimated by many wall street analysts.  Well I came across this article today, which has the White House budget director blaming old computers for our government’s inefficiencies and ineffectiveness.  It would appear that President Obama is also jumping on the bandwagon being quoted in the article as saying, “Improving the technology our government uses isn’t about having the fanciest bells and whistles on our websites — it’s about how we use the American people’s hard-earned tax dollars to make government work better for them.”

In closing the budget director had this to say “It’s time to bring government into the 21st century,” he continued. “Information technology has the power to transform how government works and revolutionize the ease, convenience and effectiveness by which it serves the American people.”

Might we see a jump in government technology spending in the future? Maybe, but either way I am still bullish on the sector.


PC Sales Jump Since Windows 7 Release

January 7th, 2010 Michael McDonough Comments off

According to Morgan Stanley and NPD, since the release of Windows 7 computer sales have risen by at least 30% y/y every week through  December 26th, the most recent data point (see chart from Morgan Stanley). Not only does this bode well for Microsoft (MSFT), but provides another reason to be bullish on Dell (DELL).  As I highlighted in a recent piece, Dell is poised to benefit from an approaching IT replacement cycle, and this recent sales data should add further fuel to the fire over the short-term.

Regarding the IT replacement cycle According to Morgan’s report, “MSFT noted in our meetings that the last material upgrade cycle was 2004/2005, and believes the combination of old machines and the pending XP end of support will be powerful drivers for an upgrade cycle, likely beginning in earnest in mid to late CY10.”  I remain bullish on Dell, and believe the company has considerable upside.

Computer Shipments

Note: I hold a long position in DELLI highly recommend you research any investment ideas presented in this piece for its suitability within your own portfolio.


Dell Set to Ride Approaching IT Replacement Cycle

December 30th, 2009 Michael McDonough Comments off

Back in October I mentioned I had a rather bullish view on the tech sector going into 2010, but the only name I mentioned at the time was Apple (APPL).  Recently, I’ve been speaking with quite a few money managers and one name in the sector has been coming up more than most others, and that’s Dell (DELL).  Looking ahead to 2010, low capital costs for businesses combined with increasing confidence will likely lead to increments in business investment and spending on equipment and software.  Investors have already seen hints of this with a 1.5% seasonally adjusted annualized increment in 3Q09 equipment and software investment.  This is likely only the tip of the iceberg, and Dell is well positioned to take advantage of the approaching IT replacement cycle.

Dell 1Y Performance

Dell 1Y Performance

Source: Google Finance

Dell has faced some downward pricing pressure over the last several months after a disappointing 3Q09 earnings report.  However, part of this slack could have been due to the late October release of Windows 7, which likely caused consumers to postpone PC purchases until the 4th quarter.  Additionally, I believe a number of analysts are underestimating the probability and the magnitude of an IT replacement cycle in 2010, giving the stock more upside potential once the cycle materializes.  Roughly 25% of Dell’s revenues are derived from the company’s commercial PC hardware segment, with another 11% coming from server equipment; both segments are poised to benefit from an IT replacement cycle.  According to Dell, PC’s currently installed are on average 9 to 12 months older than the historical average, which should add some fuel to the approaching cycle.

Additionally, as you can see from the chart below, since November Dell has significantly underperformed the NASDAQ’s Computer Index, and I believe it is only a matter of time before Dell begins playing catch-up.  The managers I spoke with fervently believe the stock should be valued somewhere between $20 and $24, and have indicated to me that they have put their money where their mouths are.  The downside risk is of course that the IT replacement cycle does not materialize or is weaker than expectations.

Dell vs. NASDAQ Computer Index

Dell vs. NASDAQ Computer IndexSource: Yahoo Finance

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Trading IdeasSource: Bloomberg

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