Dell is a new position for us (and one likely to raise eyebrows among our investors). We generally avoid technology stocks because of their very short product cycles and unpredictable future free cash flows, but we do not think Dell is a typical tech stock. Dell markets directly to consumers and assembles computers, monitors, printers and other hardware to order. As a result, it takes very little inventory risk and can change its product offerings on short notice.
In recent quarters, Dell has faced improved competition from Hewlett Packard and others and has created problems for itself by skimping on telephone tech support for its customers. As a result, sales have slowed, margins have slipped and the company?s cost advantage over its competitors has narrowed. We believe Dell has addressed these problems and that its cost structure, balance sheet, returns on investment and strong management provide the company with significant and sustainable competitive advantages. The company generates prodigious amounts of cash and is currently deploying it in a massive stock buyback program. We believe the company is worth considerably more than the current price of $24.
In recent quarters, Dell has faced improved competition from Hewlett Packard and others and has created problems for itself by skimping on telephone tech support for its customers. As a result, sales have slowed, margins have slipped and the company?s cost advantage over its competitors has narrowed. We believe Dell has addressed these problems and that its cost structure, balance sheet, returns on investment and strong management provide the company with significant and sustainable competitive advantages. The company generates prodigious amounts of cash and is currently deploying it in a massive stock buyback program. We believe the company is worth considerably more than the current price of $24.
