Saturday, September 16, 2006

My personal view on Dell

A friend of mine asked me recently what do I think of Dell now....and this is my reply...

Regarding Dell, there are so many bad news that come out already. Batteries recalls, SEC subpoena, etc. I would presume that the price that we see now is as depressed as it could be. Most importantly, Dell's moat is still intact. Dell's situation now seems a bit like Geico in the past or American Express with the salad oil scandal. Some similarity. In fact, Dell is much better position and financially stronger in comparison with Geico or American Express. Rationally speaking HP or IBM or Acer could not take away all Dell's market share. Impossible. Plus, Dell now realized that they need to beef up its customer services and thus, invested $150M to do just that. Dell also realized that price is not the only focus by customers and the experience and personalised service. As long as Dell acknowledges its mistakes and improves on them, it would be a very formidable company.

The most important question is whether to invest in Dell or not. The biggest risk is their turnaround take too long. As importantly, as a small investor is may be more profitable to concentrate digging for smaller caps with potentially higher returns. Dell is almost a $50B company and it is very hard to triple in size in comparison with a company with $1B size.

In my opinion, Dell is a good buy for big institutional investors i.e. Mason Hawkins who manages billions of funds. As for private investors, we should search for the next hidden gems. Having said that, I recommended Dell on my blog because I truly believe that it is a market beating company in the next few years. I also want to inform you that I do not own any Dell shares, but my position may change if price plunges! :)

All the best,

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