Joan Lappin, of Gramercy Capital Management, wrote in Forbes that Dell has been in trouble for a while.
She said that any company which, in this century, can redo its entire top management team and not have a single woman on it, is going to have a few problems.
Dell’s underlying problems, according to Lappin, came when an AMD court case against Intel revealed that Intel paid Dell $4.3 billion from 2002-2006 to feature “Intel Inside” on its computers to the exclusion of AMD’s chips.
This news showed that Dell’s reported earnings largely were an accounting misrepresentation as most of its profits came from the Intel subsidies and not from running the business.
Without Intel’s cash, Dell would have missed its earnings projections in every quarter for about five years.
Lappin said that Dell was never more than an “assembler” of other companies’ goods and software. It was a low cost provider with no inventory and had no “supply lines” to support between it and retail stores. Dell even made money from the interest it made by not having to pay compontent providers for 58 days.
Over the years, the idea of Dell being the one which offered the best price was lost and after cleaning up its accounting scandals, Dell tried to copy IBM and provide turnkey software packages to major corporations.
This meant buying Perot Systems and several other acquisitions to provide new revenue streams.
Lappin said that proved to be a dead end. Recently, the top manager for corporate strategy, David Johnson, left Dell to join Blackstone which showed that this cunning plan went nowhere either.
Lately there are fairly solid rumours that Dell is going to go private. This is because the share price for the company is low enough for Dell to think about it.
Dell is currently worth between $13-15 per share which is a lot lower than the $50 it used to be worth. Dell has about $11 billion in cash on hand, and it also has about $5 billion in debt.
Lappin said that Dell has become one of those movie studios which has not had a hit for a long time and is relying on its back-catalogue to keep its head above water.
As far as an investment is concerned you would be better off investing on a horse as Dell will earn you less interest than a 30 year treasury bond.
Lappin’s point about Intel and Dell is interesting. It appears that without Chipzilla doing dirty deeds dirt cheap, other companies suffer. While it is not clear how many companies suffered from the Wintel and Dell partnership knocking them out of business, it is certain that in the 1990s and 2000s a lot of the IT industry was being propped up by shady deals. Now these have been cleaned up, a few of the big names are suffering.