*DISCLAIMER: THIS WORK IS THE PROPERTY OF CARA M. MARSHALL.

COPYING THIS IS UNLAWFUL WITHOUT PERMISSION FROM AUTHOR

DELL COMPUTER CORPORATION

INTRODUCTION

Though computer technology may be an exciting place to be right now with all the new innovations, to remain competitive in this industry, a company must be able to stay at the forefront of new technology. Once a luxury; the computer is now considered as much a staple as any other household appliance and consumers have come to expect more from their computer than they did 10 or 15 years ago. Dell Computer Corporation founded by Michael Dell while still a student at the University of Texas has tapped into this computer culture and has managed to hold the number one spot in “worldwide market share.” Michael Dell was aware that the key to success would rely on the ability to deliver “state of the art” technology, exceptional quality, and personalized service at competitive prices.

Dell Computer Corporation designs, develops, manufactures, markets, services and supports a wide range of computer systems. This “full range” of computers systems includes desktop computer systems as well as Notebook computers, workstations, network servers and storage products. The company also has an “extended selection of peripheral hardware, computing software and related services”. (Dell Annual Report 2000) Dell offers extensive on-line technical support as well as on-line ordering. “ Dell revolutionized the personal computer business with an aggressive direct purchase business model and early adoption of the Internet. (FoolMart, www.fool.com)

INDUSTRY ANALYSIS

The computer hardware industry is propelled by continual improvements in technology. This constant progressive movement results in “frequent introduction of new products, short product life cycles leading to obsolescence and continual improvement in product price/performance characteristics.” ( Dell Annual Report 2000 pg. 14) Recent trends in the PC end market have generally been strong since computer sales have been strong, however: there was a slip downward in the PC sales in the third quarter of 2000. “Worldwide PC unit shipments topped 113.5 million in 1999, an increase of nearly 22% over 1998, Standard & Poors and Industry research firm IDC of Framingham of Massachusetts, both anticipated growth to about 19% in 2000 with shipment range of 134-135 million. They also predict “restrained 17% growth in 2001. (S&P Industry Pg. 2)

The recent PC Expo held in the Jacob Javits Convention Center in Manhattan was a perfect example of changing technological needs of the consumer. The “most glaring omission at PC Expo was the PC.” (Williams, pg. A47) More prominent were the laptop, Palms™ and other technology that offered wireless capabilities. Computer technology is now leaning into “hot syncing” which allows a wireless to communicate with notebooks and desktop PCs. Due to come out early next year is the USB 2.0. It is an accelerated version of the technology that “hooks up peripherals, such as scanners, printers and digital cameras to a home computer.” This advancement allows the consumer to take the home computer information wherever he happens to be. This wireless freedom along with the transfer rate of the USB2.0 that is said to be 40 times faster than the USB 1.1 is certainly going to impact the PC industry considerably. In fact it was announced that “the accounting firm “PricewaterhouseCoopers would be jumping on the wireless bandwagon by recommending Palm Handhelds to clients as a way to increase profits by making employees more productive.” (Williams, pg. A47)

To attract consumer interest, the computer industry must now find ways to link other aspects of the consumers life to the computer. Some of the systems that are designed to do just that are Sony’s new system that includes a built in MP3 music player and Panasonic $1,500 component that will record high-quality video onto a high capacity blank disk.

MANAGEMENT DISCUSSION AND ANALYSIS

Dell Computer Corporation’s management teams goals are to maximize stockholder wealth by executing a strategy that focuses on a balance of three priorities Liquidity, Profitability and Growth. It is Dell’s policy to not pay out cash dividends to common stockholders so as to reinvest profits in the company. Dell’s strategy has worked well; they have “consistently been a leader in liquidity, profitability and growth among all major computer systems companies” (www.Dell.com). While there has been dramatic changes in computer technology, Dell believes the most exciting period for computing and for the company is “yet to come.” Dell now intends to expand on the direct model approach to become not only world leaders in global computer sales but also leaders in customer service.

BUSINESS STRATEGY

The company’s business strategy is focused on its direct business model. Using this model Dell hopes to deliver superior customer experience through “direct, comprehensive customer relationships.” Dell’s management believes that “by selling computer systems directly to the customer, the company could most efficiently understand and satisfy the computing needs of customer” (Dell Annual Report 2001 pg. 3) The company strives to maintain a close relationship with its customers. To achieve this goal, Dell has representatives that make frequent calls on customers to assess their changing computer needs as well as sales people who call on present and potential future customers.

The Direct Model

Dell Computer Corporation “the worlds largest direct computer systems company” has designed a plan called it’s “Direct Model.” The direct Model is broken up into five parts, price, performance, customization, reliability, services and support. This will be delivered with the latest technology, and produce superior shareholder value.. Technical support too can be contacted on-line, by phone or in person.

The customer base that utilizes Dells products and services include large corporations, government, education customers, small to medium business individuals and healthcare.

Dell sells customized computers directly to the consumer. This allows company the ability to operate with reduced levels of component and finished goods inventories. This critical advantage gives Dell the competitive advantage by not only eliminating retail markups but because of the low inventory rate, the risk for obsolescence is reduced. “ The changes in the hardware arena are staggering. Every few months there are newer, faster processes” (Woodworth, pg. 23.)

As a further extension of the direct model, the company offers all domestic customers, a spare parts ordering system and a virtual help desk.” This system can also direct link the customer to technical support information. To further utilize the Internet as a selling tool, in fiscal year 2000, Dell expanded its Internet presence with the launch of www.gigabuys.com where more than 30,000 computer related products could be purchased. Web hosting services are offered through an Internet provider operation called www.dellnet.com. This market comprised 13% of the company’s overall sales revenue up from 10% from 1999. The company receives in excess of 500 million page visits per quarter to www.dell.com . (Annual Report 2001. P 4) In December of 2000 the web sight was the third most visited web sight in the United States. The company plans to further utilize the Internet to better serve its customers.

Though the company sells its services to large corporate, government, educational and healthcare institutions, it’s receivables are well diversified so that the loss of one large customer won’t adversely affect the company’s revenue structure to a critical extent. Dell’s diverse customer base allows for more flexibility, during the fiscal years 1998 through 2000, no single customer accounted for more than 10% of the consolidated net revenue.

COMPETITION

· Apple Computer

· Compaq Computer corporation

· EMC Corporation

· Gateway, Inc,

· Hewlett Packard Co.

· International Business Machines (IBM)

· Lexmark International Group

· NCR Corporation

· Network Appliance

· Palm Inc.

· Sun Microsystems

Because the computer hardware industry is so highly competitive, companies don’t have the luxury of sitting back on their accomplishments while hungry computer companies are out snapping up the latest technology. A successful company must be always looking to expand to be able to handle virtually any of their customer’s needs. Though there are many competitors in the market, Dell’s three main competitors are Compaq, IBM, and Hewlett Packard.

Compaq, Dell’s fiercest competition, is vying Dell to be the world’s #1 PC maker. Compaq has already launched a plan that is very similar to Dell’s direct model. Compaq’s business plan includes a “stronger sales pitch to small and medium sized businesses and programs.” The Compaq plan though has extended their plan to include the “utility pricing model” which bills customers for hardware and services based on a per use basis. Like Dell, Compaq is concentrating on simplifying and providing complete solutions to customers. (Feder, pg. C1)

Fiscal year 2000, Comparison of Dell’s Top Competitors

1 YR	IBM	HPQ	C Compaq	DELL
Sales (mil.)	$88,396	$48,782	$42,383	$31,888
Growth	1%	15.1%	10%	26.2%
Net Inc. (mil)	$ 8,093	$3,697	$569	2,177
Growth	4.9%	5.9	0%	30.7%
Employees	316,303	88.500	94,600	40,000
Growth	2.9%	4.9	11.2%	9.6%

DELL PRODUCTS - RESEARCH AND DEVELOPMENT

In the future, the company expects to expand on the direct model that has served so well in the past. Also “Dell has generally invested in emerging technology companies with business objectives built around the Internet, services, server and storage products and communications.” (Dell Annual Report 2000, pg. 11)

Product development is focused on designing and developing technology that offers the flexibility customers expect and does so at a competitive price. Dell closely monitors technology developed by others and obtains that technology that it feels will benefit the company. To maintain customer confidence the company takes steps to ensure quality. Dells staff includes programmers, technical project managers engineers who are well versed in logic board design, sub-system development and mechanical engineering.

Dell incurred $568 million in research, development and engineering expenses in fiscal year 2000. This expense included a $194 million write-off of purchased in-process research and development that will be further discussed in the section titled Acquisitions and Expansion. Research and development expenses show that Dell is serious about keeping pace with the ever-changing face of computer technology. The company chooses activities that focus on enterprises that will have the most positive effect on the company’s revenue and allows for the highest return on capital.

Further proof that Dell is constantly focusing on emerging technology is its licensing agreements with Microsoft Corporation for various operating system and application software. Though the agreement is not exclusive, Dell can look to any advancement that Microsoft has to offer so that it’s not left behind in the technology race. At this time Dell already holds a portfolio of 510 U.S. patents and 431 U.S. patent applications pending. This total does not include foreign existing and patents pending. Though it may seem obvious that patents are filed but not thinking ahead can too invite competition. By not demanding an exclusive license from Microsoft for MS-DOS, IBM missed out on a golden opportunity in allowing Microsoft to market that operating system to any hardware manufacturer thereby eliminating IBM’s uniqueness. “Compaq and Dell can trace their lineage to that miss-stroke of stupidity”. (Kaplan, pg. 137)

In fiscal year 2001 Dell utilized $482 million in cash to improve to improve and equip its manufacturing and office facilities to keep pace with the company’s continued growth. Similar expenditures fiscal years 2002 are expected to be in the range of $300-$350 million.

The company’s continued dedication to providing their customers with top of the line technology, requires constant investment in research and development with the expectation of improving and developing efficient manufacturing and distribution processes and to introduce new products. In doing so research and development expenses have increased each year however in the computer technology industry this expense is necessary since technology becomes obsolete so quickly the only way to remain at the forefront of the industry is to continue to search for and find advanced technology. Growth required enhancement and expansion of not only its information systems, but also the management team, the manufacturing operations and other aspects of the company’s infrastructure.

Acquisitions and Expansion

In an effort to keep pace with emerging technology, Dell computer purchased all the outstanding shares of ConvergeNet Technologies, Inc. October 20, 1999. ConvergeNet develops storage domain management technology for enterprise storage area networks. The purchase was for in-process research and development. Dell paid a total of $332 million that consisted of 6.9 million shares of Dell’s common stock and $4.5 million in cash. The acquisition was recorded using the purchase accounting method meaning management used the fair value of the company to report the financials of the acquired company. The ConvergeNet’s purchase price minus the fair value left $132 million in goodwill. The goodwill was amortized on a straight-line basis for 3 to 8 years. This information appears on the Income statement supplied in the appendix.

During the fiscal year 2000, the company expanded operations to Nashville, Tennessee area and opened a manufacturing facility in Eldorado do Sol, Brazil to serve Latin America.

GEOGRAPHIC DIVERSIFICATION (Globalization)

Dell is headquartered in Round Rock, Texas however recognizing the benefits of globalization; the company conducts business on a worldwide basis. A substantial amount of revenue is generated from sales in other countries. Dell’s future growth rate and success are in part dependent on continued growth in the international market. Sales outside the United States accounted for approximately 33% of the company’s revenue for the fiscal year 2001. Dell offers multinational corporate customers several programs designed to provide “global capability, support and coordination.” (Annual Report 2001 pg. 5) To achieve this Dell provides single points of contact to accommodate all of the corporate customers’ needs. Dell’s management feels “continued worldwide growth by increasing the company’s market presence in its existing markets, and pursuing additional product opportunities will have a positive impact on future revenue.

As of February, 2001, Dell Corporation “owned or leased a total of approximately 10 million square feet of office, manufacturing and warehouse space worldwide. The international facilities consisted of approximately 3 million square feet of office and manufacturing space in 33 countries. The idea that “technology is leading to the spread of a global culture” is a concept that has already been grasped by Dell. ” (Germain, pg. 211)

Dell conducts operations in America, Europe and Asia-Pacific and Japan regions. The company’s manufacturing facilities are located in Austin, Texas; Nashville, Tennessee, Eldorado do Sol, Brazil; opened during fiscal year 2000 to serve Latin America; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. The increased “reliance of the global economy on data and telecommunications networks to facilitate rapid exchange of information” is forcing the computer companies to constantly be searching out advanced technology that can be used to achieve this goal. (S& P Industry pg. 2.) The consistency and speed at which this information can be transferred is going to be the task of the Computer industry.

Computer Technology “is really a global business, which demands frequent contact with national and international vendors regardless of geographic location or time zone.” (Woodworth pg. 23) To achieve this goal, Dell has a sales force that is capable of calling on customers throughout the world.

Approximately 1.6 million square feet of this space is leased property that won’t expire until December 2013. The majority of the property occupied by Dell is an operating lease and recorded only as a rent expense however in certain leases Dell is required to pay maintenance, taxes and repair.

FINANCIAL ANALYSIS

Dell’s effective tax rate was 30% for fiscal year 2001, 32% for fiscal year 2000 compared to 30% for fiscal year 1999 and 31% for fiscal year 1998. The differences reflect the changes of geographical distribution of income and losses and certain tax-deductible charges. The company’s effective tax rate is still lower than the U.S federal statutory rate of 35%. This too is due to the geographical distribution of income.

Increased revenue in 2001 was principally due to increased sales of units. Shipment grew 29%. Unit sales grew 47%. Dell shipments ranked number one in the United States and number two worldwide, moving up from positions two domestic and three worldwide from 1998. Unit sales grew 47 during fiscal year 2001. Notebook computer sales increased by 52%. Desktop computer systems increased 22%. Several factors affected the sales increase including aggressive market penetration and the new higher end products. Unit sales in 2000 grew 50% notebooks grew 61% and desktops grew 46%. These figures show that the newer technology, the notebook computer sales increase surpassed desktop sales.

These figures alone is a clear indication that computer technology is headed toward the wireless division. Though the total sales grew throughout fiscal year 2000, the average revenue per unit sold decreased by 8% compared to 1999. This was due to pricing strategy Dell utilized to generate sales and bring in new customers. Throughout the United States, sales represent the majority of the total absolute revenue, Asia-Pacific and Japan grew at a faster rate than either the U.S or Europe. Average revenue per unit decreased by 2% compared to fiscal year 2000 primarily due to price reductions.” (Annual Report 2000 pg. 19) Undoubtedly the sluggish economy contributed to the 6% decline in revenue per unit in the fourth quarter of fiscal ear 2001. This 6% was lower than the full year average. Sales in Europe increased by 20%, the sales in Asia-Pacific and Japan increased by 56% in fiscal year 2000. These same markets increased 58% in Europe and 37 % in Asia-Pacific and Japan in 1999.

Dell ended fiscal year 2000 with $6.9 billion in cash and investments. This total is more than double the investments from fiscal year1999. Cash flows from operating activities resulted primarily from the company’s net income, changes in operating working capital. It was also affected by the income tax benefits resulting from the exercise of employee stock options.

Debt

As of February 2, 2001 Dell’s short-term debt securities of $524 are scheduled to mature within one year. The balance of the debt matures within five years. The maturities on Dell’s debt investment have maturities of less than three year, suggesting the credit risk for Dell Computer is minimal. Though Dell had access to a revolving credit line of $252 (expires June 2002) it wasn’t used in the fiscal year 2000 or 2001.

Investments

Dell invested a significant portion of available cash in highly liquid investments with maturates of three months or less. This would suggest that the company is highly liquid. The short-term investment of $3 billion of fiscal year 2000 has more than doubled the $1.5 billion at the end of fiscal year 1999. Days in accounts receivables went down by two days, this combined with a four-day increase in accounts payable improves Dells cash conversion cycle to a negative 18 days in fiscal year 2000 an improvement over the negative 12 days in fiscal year 1999.

Working capital has increased the inventory turnover has decreased to 6 days. This shows that Dell has little chance that capital is wasted with computers sitting on the shelf in inventory, only to become obsolete. Dell management is constantly aware of operating expenses and its impact on revenue and this information is used to maintain the success of the business.

FINANCIAL RATIO ANALYSIS

Short-Term Liquidity Analysis

Units	Measure	Industry	Compaq	2000	1999	1998	1997	1996
Ratio	Current Ratio	1.46	1.40	1.47	1.48	1.57	1.45	1.66
Ratio	Acid-test Ratio	1.07	1.00	1.27	1.30	1.28	1.23	1.36
Times	Accounts Receivable Turnover	5.89	5.60	11.59	10.75	10.19	10.32	9.53
Times	Inventory Turnover	19.88	15.20	64.36	60.38	55.88	39.69	17.92
Days	Days' Sales in Receivables	61.12	64.29	31.06	33.50	35.32	34.88	37.79
Days	Days' Sales in Inventory	18.11	23.68	5.59	5.96	6.44	9.07	20.09
Days	Liquidity Index			17.70	18.84	26.66	22.71	23.03
Days	Days' Purchases in Accounts Payable			69.47	63.53	61.04	61.58	61.45
Days	Average Net Trade Cycle			-32.81	-24.07	-19.27	-17.63	-3.57
Percent	Cash Provided by Operations
	to Average Current Liabilities			71.50%	88.35%	76.22%	73.11%	104.89%

Dell’s short-term liquidity is strong. This is evident in the above table, which was calculated using Dell’s financial statements. As you can see, the current and quick ratios are above both the industry average and Dell’s fiercest competitor, Compaq. Inventory turnover is extremely high, and days’ sales in inventory are low. The combination of these factors reflects Dell’s commitment to its “Direct Model” plan.

Other strengths in this liquidity analysis include Dell’s collection period, which has been improving steadily over time and has reached an outstanding 31 days. It should also be noted that Dell has consistently put its cash from operations to work as a major source of funding. Additionally, the declining liquidity index over these five years implies improved liquidity.

Capital Structure and Solvency Ratios

Measure	Industry	Compaq	2000	1999	1998	1997	1996
Total Debt to Equity	0.73	0.11	1.39	1.16	1.96	2.30	2.37
Total Debt Ratio	0.46	0.05	0.58	0.54	0.66	0.70	0.70
Current Liabilities to Total Liabilities			0.84	0.84	0.81	0.91	0.87
Earnings to Fixed Charges			40.73	41.36	55.82	92.94	33.42
Cash Flow to Fixed Charges			65.11	78.57	81.41	121.03	17.86
Total Financial Leverage Ratio			2.39	2.16	2.96	3.30	3.71
Financial Leverage Index			2.24	2.37	3.05	3.45	2.76
Altman Z Score			3.62	3.47	4.10	4.39	3.98

The table above depicts the ratios as generated from Dell’s financial statements. Dell’s debt to equity ratio had been steadily declining, suggesting that Dell was using more equity for financing than in previous years. However, in 2000 the debt to equity ratio slightly increased compared to 1999. In this year, the debt to equity ratio was negatively affected by the market slowdown and the stock’s decline.

Dell’s earnings to fixed charges and cash flow ratios indicate that they can fulfill their debts and are in good shape for their creditors. The total financial leverage ratio depicts that in 2000 every $1 of common equity commands $2.39 in assets. Also the financial leverage index implies that Dell is using their debt profitably. An Altman Z-score of 3.62 is well out of the bankruptcy range.

Asset Utilization

Measure	Industry	Compaq	2000	1999	1998	1997	1996
Sales to Receivables			11.59	10.75	10.19	10.32	9.53
Sales to Inventories			80.63	76.10	72.11	50.94	22.82
Sales to Working Capital			11.73	10.98	10.97	10.70	7.36
Sales to Fixed Assets			36.22	39.23	42.18	42.73	37.48
Sales to Total Assets			2.56	2.75	3.27	3.40	3.13

*Using average for balance sheet items

The above asset utilization table was calculated using Dell’s financial statements. You’ll notice that sales to receivables and sales to working capital remain relatively stable throughout the years. The slightly decreasing trend among sales to fixed and total assets, can be attributed to the increase in inventory and receivables as seen later in the current asset turnover ratio. Sales to inventory however has been gradually improving, which also contributes to the success of Dell’s “Direct Model” mentioned earlier.

Operating Performance

Measure	Industry	Compaq	2000	1999	1998	1997	1996
Gross Profit Margin			20.21%	20.65%	22.51%	22.08%	21.47%
Operating Profit Margin			10.02%	9.70%	11.42%	11.10%	9.63%
Net Profit Margin	7.22%		6.83%	6.59%	8.00%	7.66%	6.68%

This table is based on calculations from Dell’s financial statements. Gross profit margin has been rather steady throughout the years at about 21%. Operating profit margin is also rather steady at approximately 10% throughout these five years. These measures depict that Dell has maintained firm control over expenses. Dell’s bottom line profit measure, net profit, has also been relatively constant and is slightly below the industry average. This industry is particularly competitive and in order for Dell to provide high quality, made-to-order, products while maintaining top market share, the result is slightly lower profit margins.

Return on Investment

Measure	Industry	Compaq	2000	1999	1998	1997	1996
Return on Assets	21.80%	2.40%	17.75%	18.41%	26.53%	26.06%	21.13%
Return on Common Equity	63.05%	4.90%	39.84%	43.68%	80.80%	89.95%	58.23%
Financial Leverage Index			2.24	2.37	3.05	3.45	2.76
Equity Growth Rate			39.84%	43.68%	80.80%	89.95%	58.23%
Disaggregation of ROCE			41.78%	39.25%	77.63%	85.83%	77.72%
Adjusted Profit Margin			6.83%	6.59%	8.00%	7.66%	6.68%
Asset Turnover			2.56	2.75	3.27	3.40	3.13
Financial Leverage Ratio			2.39	2.16	2.96	3.30	3.71

The above table depicts return on investment based on calculations performed on Dell’s financial statements. The return on assets for Dell is lower than the industry average, yet significantly higher than Compaq’s. This suggests that Dell has been operating efficiently, making wise strategic decisions, and has been utilizing assets effectively. Additionally the return on common equity and equity growth rate for 1997 and 1998 was extremely high, when the stock price was soaring. In 1999 price leveled off and 2000 led to a decrease (as noted earlier). Again, the financial leverage index implies that Dell is using their debt efficiently.

Disaggregation of return on common shareholders’ equity adjusts profit margin to reflect operating and tax-management effectiveness, thus giving us a better picture of true return on equity. This new figure, though it lessens that of earlier years, makes Dell look even better in 2000.

RISK FACTORS

Any business is vulnerable to some type of risk that includes, business, economic and industry and Dell is no exception. Dell has however taken precautions to minimize their exposure to risk though they too acknowledge the possibility is there.

Economic Risk

Economic risk though expected is by no means completely unavoidable. The federal reserves’ recent lowering of the interest rate by a quarter percent is indication of an economic slowdown that started the last quarter of last year and has continued well into 2001.

Alan Greenspan, chairman of the federal reserve has lowered the interest rate for the sixth time in the span of a year in an effort to jump start the sluggish economy however these interest rate cuts have not shown any long term effect. The slowed spending of consumers is certainly felt by the computer and technology industry since when faced with possible recession, such services prove to be income sensitive.

The natural reaction to the type of economic slowdown that we as consumers are experiencing is to cut back on spending even more, which ironically only contributes to an already vicious cycle of layoffs, sluggish consumer spending which lead to more layoffs. Consumers are being extra careful about how their income is spent because many fear that the “worst of the economic downturn may not yet be over.” (Leonhardt, pg. C1) Further adding to this feeling of an even more serious impact, are the layoffs materializing not only in the Computer industry, but also in other areas retail, telecommunications and manufacturing just to name a few. Dell has already felt the effects of the economic down turn and has experienced budget tightening. Compaq recently requested that some 30,000 to 33,000 of its workers take a mandatory paid week off from July 2- 6. A moved designed to cut costs. Consumers who fear an economic downturn are less likely to spend on technology upgrades.

Industry Risk

A slowdown in the economy can cause customers or potential customers to reduce or delay their investments in computer systems. The question is; if the economy is sluggish, “how frequently will consumers seek to upgrade their computers” or even add a second or third computer to their household. (Semi conductors pg. 2)

Ironically technology allows companies the ability to react more quickly to the changing demand of their product. This would appear to be a good trait of technology since companies now will know sooner that they should discontinue their productivity of new merchandise and sell some of their “bulging inventories.” Dell Computer’s direct model however, includes an astonishing inventory turnover period of 6 days which is down from 7 days in 1998. This fact alone causes some concern for Dell since the company doesn’t have the “bulging inventories” to fall back on.

Business Risk

Another concern is the pricing concerns from purchasing raw materials from outside vendors. Time to time increased expense results in a decrease in profit margins as in fiscal year 2000 when the decrease in gross margin was attributed to the increased component costs where the average revenue per unit decreased by 8%. The company also purchases a number of components from single source sometimes because of the high quality that has been consistently produced but also because at times no alternative sources are readily available. If any of these single sources have an inventory supply problem Dell could experience delays in shipping.

An inherent risk for any technology hinges on the nature of the business itself. Dell could also lose revenue if the company does not continue to produce superior technology at competitive prices. Conversely the influx of advanced technology from suppliers produce superior components. For example as Intel’s chips improve, the market place in which Dell sells their wares also increase.

Foreign Currency Translation Risk

Though some financial currency translation risk exists, Dell has taken precautions of any substantial loss of capital. However based on foreign currency instruments outstanding February 2, 2001, Dell estimates a maximum potential one-day loss in fair value of approximately $21.4 million using a Value-at-Risk (VAR) model. (Annual Report 2001. Pg 30) The VAR model is an estimation tool used to estimate risk and doesn’t represent actual loss. The majority of the company’s internationals sales are made using the U. S. dollar as its functional currency. Also Dell has entered into foreign exchange currency contracts to hedge its foreign currency risks. These hedges are monitored constantly for any substantial change regarding the hedge’s effectiveness. The risk of loss is thereby limited to “premium amounts paid for the option contract.” (Dell Annual Report 2000. pg. 43)

STOCK PERFORMANCE

As of 6/29/01 the 52 week high was 54.67 and the low was 16.25. At this time the stock is not doing very well because of the faltering economy. Should the economy pick up I’m sure Dell’s will bounce back but as long as the economy is bad, unfortunately the stock reflects what the economy is experiencing.

Dell Computer Corporation is traded on the NASDAQ under the symbol DELL. The company’s common stock par value is $.01 per share. As of April 2001, there were 34830 holders of Dell’s common stock. Dell Computer has never paid cash dividends on common stock. The company has also undergone three two-for-one common stock splits one on each of the following dates March 6, 1998, September 4, 1998 and March 5, 1999. They paid 100% dividend to stockholders of record as of February 27, 1998 August 28, 1998 and February 26,1999.

The Dell Computer Corporation offers and incentive plan that offers substantially all employees the ability to purchase company stock through payroll deductions at the end of each participation period. The purchase price is equal to 85% of the lower of the fair market value of the common stock at the beginning or the end of the participation period. Stock issued totaled three million shares in 2000; five million shares in fiscal year 1999 and nine millions shares in fiscal year 1998.

These diluted shares were reported separately in the annual report, however, the pro forma effect on basic earnings per common share was a reduction of $0.17 in 2001, $0.09 in 2000 and $0.05 in 1999.

CONCLUSION

In analyzing this company, we feel that investment in this company’s stock would be advantageous. The fact that the company’s financial structure is strong, and their expenses are well managed leaves us to believe that Dell Computer Corporation would be a sound investment. We were also impressed by the fact that Dell is not just enduring the slowed economy, but is aggressively promoting their products globally. This attitude gives us confidence in the Company’s future performance.

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