FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>
2214 W. Braker Ln., Ste. D
Austin, TX 78758-4053
(512) 338-4400
http://www.dell.com

WASHINGTON, DC (March 4, 1997) /FOOLWIRE/ --- Dell Computer Corporation reported on Tuesday, February 25, 1997 results for its fiscal 1997 fourth quarter. Present on the conference call to discuss the quarter and the year were Michael Dell, Chairman and CEO; Tom Meredith, CFO; and Mort Topfer, Vice-Chairman.

Tom Meredith opened the discussion with the details of the fourth quarter: "By virtually every measure, we had an outstanding quarter and an outstanding year... Our continued focus on the three priorities of liquidity, profitability, and growth allowed us to set numerous records. Revenues increased to a record $2,412 million, which was about the consensus estimate of $2,200 million. EPS rose to a record $1.01, well above the consensus estimate of $0.83 per share. Solid earnings growth and solid capital management during the quarter contributed to a 154% return on invested capital, an industry record. Cash and marketable securities reached $1,352 million, more than double the level a year ago. We achieved this increase despite spending $500 million to buy back 20 million shares of our stock during the year. Our purchases represent 11% of the outstanding stock at the start of the year."

"Our performance clearly illustrates the fundamental advantages of the Dell model. Our direct relationships with end-users and our fast-turns distribution model allowed us to achieve one of the highest unit-growth rates while delivering the strongest balance sheets in the industry. We've also seen consistent execution and strong performance across all geographies, products, and customer segments. Revenue was up 57% versus the fourth quarter last year and up 19% sequentially. This marks the twelfth consecutive quarter of sequential growth. Revenue from the American region grew 67% vs. Q496 and was up 17% on a sequential basis. Our transaction business, which is comprised of consumers and small to medium-size businesses is typically strong in the fourth quarter, and that was certainly true this year." The company's U.S. Large Corporate Accounts Group grew 67% year-over-year and 32% sequentially. This segment builds long-term relationships with companies that are constantly in a product replacement mode. Government and education sales showed a seasonal decline, as those groups end their fiscal year in the third quarter. Canada was again strong, growing 106% vs. Q496 and 46% sequentially.

Dell continued its global expansion with solid growth in Europe and Asia/Pacific. European revenue grew 34% vs. the fourth quarter a year ago and 28% sequentially. In the U.K., the company's most mature European market, Dell grew at twice the industry rate and the company is strengthening its number-two position in that market. The company saw superior growth in France and Germany as competitors have identified the continent as being a weak spot. Each of these two countries was up more than 45% year-over-year. Despite the soft German economy, Dell has continued to see major growth in this market all year long.

Asia/Pacific, including Japan, grew 60% versus the year-ago quarter and 8% sequentially. Sales in this region exceeded $476 million for the year. While Asia/Pacific is an area where the company is making significant investments, the company is pleased with the momentum it sees. Dell now has a direct business model established in 11 markets in the region, including three of the top five markets. Backlog in this region dropped to $222 million from Q3's level of $239 million, representing a decrease from 11 days of sales to nine days.

PRODUCTS. The company continues to experience momentum in servers. Servers grew 226% in the quarter and 89% vs. Q396. Servers are now 6% of systems revenue. Unit growth was 310% year-over-year and 76% sequentially. With the introduction of the high-end 6100 servers, the company now has a full array of Pentium servers in the market. Momentum here is due to quality of product and pricing, where the company has consistently priced its products as much as 30% below leading competitors. According to IDC Research, Dell is now the fourth-largest server supplier worldwide and was only 1,500 units behind IBM in Q4. "It is a major Dell priority to continue this momentum over the next few years."

NOTEBOOKS. Notebook revenue grew 92% year-over-year and 23% sequentially, putting notebooks at 20% of systems revenue. While the company improved market share and advanced to the number-five position in the U.S., Dell's worldwide rank remained at seventh. Notebooks is a very competitive sector of the market with a number of competitive product entries to deal with. It is also one of the most volatile sectors in terms of component supplies. "Large high-resolution TFT screens remain in tight supply today. These are issues facing all of us in the industry and you should be them in mind in your models for the year ahead."

DESKTOP PRODUCTS. Desktop products continue to fare well, growing 46% from a year ago and 14% sequentially. Dell continues to lead the industry in transitions to the newest technologies across all products. For the quarter, 54% of systems revenue was generated by sales of systems with processor speeds of 166 MHz and above. The Pentium Pro/NT transition appears to be going very well. For the quarter, Pentium Pro revenues represented 21% of systems revenue, and the company continued to lead the industry in transitioning to Windows NT. 13% of Q4 shipments went out with NT loaded on them. Average revenue per unit rebounded in the quarter, following a sharp decline in the first half, related to memory costs. Average revenue per unit increased 6% sequentially, to approximately $2,715, but remained 5% below the level seen a year ago. Total unit shipments were up 66% vs. Q4 1996 and 12% sequentially.

PROFTIABILITY. Gross margin was 21.7% in Q4, a decline of 1/2 a point from Q3. This was in-line with caution expressed at the beginning of the quarter. Operating expenses were managed tightly, allowing price cuts to drive unit growth. The result was upside on revenues, a drop in gross margins and an offsetting drop in operating expenses as a percentage of sales. Operating expense dropped a full point sequentially, to 11.3% of sales, in Q4. While that profit produced a higher bottom line performance than was expected, the company "ha[s] to be careful to invest in infrastructure to keep these businesses healthy. The Dell family grew by 650 people this quarter, but at our growth rate, we need more people at all levels of the organization."

LIQUIDTY. "We have increased our focus on asset management as a lever for extending the advantages of our model." Days sales in inventory was an industry-leading 13 days in Q4, up one day sequentially, but down 18 days, or 58% lower, than one year ago. The sequential increase was more than offset by our progress in receivables. On a sequential basis, days in accounts receivable decreased from 41 days to 37 days. This performance allowed the company to reduce its "cash inversion cycle" to a negative four days. For the quarter, the company generated $337 million in cash from operations, bringing total cash flow from operations during the year to $1,352 million.

STOCK REPURCHASE. The company's stock repurchase program was announced in late February, 1996 and was amended in May. Under the program, the company may buy back up to 32 million shares of common stock. The company has now purchased 20 million shares. The company has also has an outstanding options arrangement covering another 9 million shares, which are exercisable through September of 1997.

OUTLOOK. Dell believes overall industry demand remains very healthy -- end user buying has not been as volatile as investors perceptions of demand. Customers continue to transition to Pentium Pro with MMX. The company is also seeing a strong transition to 32-bit operating systems and related applications like Office 97. The first quarter is typically a good one for Europe. Selected European governments accelerate purchases as they approach the end of their fiscal year at March 31. The first quarter is not as strong in the US as consumers and businesses drop back from peak buying in the fourth quarter. Because of these factors, this is typically a flat to slightly up quarter sequentially. Last year, the rise was six percent, but it benefited from a transition problem the company had in Q4 FY96.

On the profit front, the company wants to continue to deliver superior earnings growth and believes it has a model to do so if it continues to execute. There are factors running both ways on the gross margin line. There are several areas where Dell can reduce transformation costs and the company will continue to improve its mix of servers. While the company continues to lead the market in server pricing, these products continue to carry superior margins. On the negative side, Dell will continues to push its penetration in new and emerging markets. This push will take the form of aggressive prices, where the company is driving for rapid penetration, not near-term margins. Some of this was seen in the fourth quarter.

Product transitions are always a risk. As in all years, the company will be in a continuous transition of products, which is the largest risk it faces.

At the operating expense level, there will be a number of areas where spending will pick up. The first priority is to invest in people -- Dell has grown its headcount 24% in the last year, but revenues grew 57% over the same period. The company needs to accelerate hiring across the board. The company occupies a fully-employed industry, and Dell's ability to attract the right people will be a major factor in overall growth rate going forward. The company is looking for opportunities to invest in systems where it can be done sensibly. Finally, the company will be investing in new business opportunities. The company cautioned that it could see pressure on operating margins from the level seen in the fourth quarter. Guidance on tax rate going forward is 31%.

MICHAEL DELL, CHAIRMAN AND CEO. "In the year ahead, we will be investing in three key areas that are designed to take our model to the next level. There three areas are the Internet, value-added services, and workstations."

INTERNET. "The Internet is the next obvious step for us. It is the purest and most efficient form of the direct model, and we've already been doing about $1 million per day in business through this format. Our activities today fall into broadly into three categories: Transaction sales, relationship sales, and after-sale support. All three take advantage of a very low-cost customer interaction, for they offer a major step forward in cost efficiency as we improve out website and the tools that support them. From the effectiveness standpoint, they offer the customer to price alternative configurations and place and order with fewer delays and less hassles. For consumers and small business accounts, much of this process can take place without a Dell sales person even getting involved. In the case of our relationship customers, those large business with whom we do a high volume of ongoing business, we have begun to customize websites with products and logistics details unique to each customer accounts. This does two things: It frees out direct sales teams to focus on higher value-added activities and allows our customers to streamline their own procurement process."

VALUE ADDED SERVICES. This is not services like the company's third-party support services deliver not is it designing systems like EDS or Andersen consulting provide. "For individual consumers or small businesses, it will take the form of systems that will improve Dell's accessibility -- shorter wait times when they call in and quicker service. We do as good a job today as anyone, but no one in our industry, quite frankly, does it very well today. This is the number-one hot button for small accounts and smaller customers and it's out goal to invest in systems and improvements that will give us a competitive edge meeting this need. For large account customers, additional services will focus on helping them better manage the total cost of owning computers. Many of our larger customers are beginning to devote a lot of time to understanding the total cost of a product over its entire life and what needs to be done to reduce that cost. One area where we already lead the industry is in integration services. Through our Dell Plus program, we integrate a wide variety of hardware and software offerings.... We will be investing in a major expansion of this program in the year ahead."

The company will also be investing in asset management programs in the coming year. Dell will invest in an expansion of its leasing services to generate more leasing transactions that help manage the disposition of systems at the end of their useful lives.

WORKSTATIONS. Dell already has workstation-level systems in its Optiplex GX Pro systems. A number of those products are being used for numerically-intensive workstation applications in the financial services industry. "In the coming year, we intend to form a business unit dedicated to this sector so that we can expand the line and add peripheral products and services that meet this customer's unique needs."

"Our direct relationship model has given us the key starting place in all three of these areas....Without the direct interaction we enjoy with our customers, we would not be able to accurately segment the market and create separate business units dedicated to each one."

"In summary, it's been a great year for us. We're number one in share price growth among U.S. companies in both the S&P 500 and the Dow Jones World Stock Index. We believe we have the model to continue delivering continued superior shareholder results, but it will require investment and execution on our part, and we have a number of challenges ahead of us...."

QUESTION AND ANSWER SESSION. Michael Dell commented that competitors such as IBM or H-P might tighten up their operations in adopting a Dell-like model, but without the manufacturing and distribution integration that Dell has working for it, those competitors will not achieve the level of efficiency designed into the Dell model.

The company doesn't focus so much on micro-managing gross margin as it focuses on creating topline momentum to create leverage on the bottom line and drive financial results. That was seen in the last quarter where gross margins were down slightly but where the operating expense ratio dropped.

Customers have been migrating to higher price-point sales because they find they receive more value in those machines. The company is not going after that first-time buyer market -- Dell doesn't see much interest from second-time buyers in underperforming econo-boxes.

The company sees average selling prices staying in the $2,550-2,850 range, a continuation of trends seen in the last couple years.

The pricing environment is relative tame, with stimulus this year in the corporate upgrade cycle with movement toward NT and some customers still making the move to Windows 95, Office 97, Pentium Pro, MMX, Pentium 2, signaling a lot of ongoing replacement buying. Inventory turns at other companies may have improved through those companies' efforts to improve operations, but at the same time factory inventories dropped, a blip up was seen in channel inventories. To compare inventory turns in the rest of the industry, one would have to compute inventories throughout that value chain to Dell's 'what you see is what you get' level of inventories. Dell believes its build-to-order process can maintain inventory turns in a tighter availability environment.

The server business had broad-based growth across all custom accounts with 310% unit growth year-to-year. A number of accounts were taken into completely new categories of unit demand, with some approaching 1,000 server orders. The 6100, which is a four processor Pentium Pro, just started shipping. The vast majority of servers are running on NT. A number of different applications are running on these, with Internet servers growing quickly. The company will focus on building closer alliances and partnerships with database and applications companies to help customers design products into more complex applications.

On one level, the company has expended a lot of time and money evaluating Cyrix and AMD chips over the last couple of year without much product to show for it. Dell is concentrating on the growing markets and now the low-end configurations.

Dell added roughly 2,000 people during the year. A large number of people were added in the Austin area, but also around the world. People will be the main determinant to how quickly the company can grow, but processes and systems are very important to growing revenues.

Desktop unit growth was 61% year-over-year.

The memory market is starting once again to see if it can get the price to go up. It's not necessarily that unit supply has really changed, but vendors are seeing if they can back up the market a bit. Pricing has firmed, but it's hard to tell if the pricing environment will stick together at higher levels. The company does see a lot of capacity that can come on-stream rather quickly. The company's chip procurement agreements are made more with an eye toward securing availability with some market pricing to cushion on the downside.

Servers and notebook growth has demanded more from R&D due to their complexity. Workstation development will also command R&D investments this year. Dell will be adding more graphics capability and will be working more with traditional UNIX software developers in driving NT workstation demand.

In component availability, the company hasn't really been constrained except in TFT displays, and they see that abating in the near future. Drives have been somewhat tight, but that hasn't crimped the company's ability to deliver product. Some of this is due to the desire of the company's suppliers to keep up with Dell and award them the best allocations.

Demand was consistently strong through the quarter and the company is pleased with the continuation of that trend through February.

The company hasn't lost business to the NC -- the question is whether customers want to go along with a proprietary UNIX-like structure or continue with the migration to NT. The company is taking seriously the cost of ownership concerns of keeping the application on the server and not on the client machine. In terms of server goals, the company is looking at a multi-year strategy, notwithstanding its rapid gains here. Dell intends to achieve an attach rate of servers to desktops consistent with that reached by leaders in the industry.

On margins trends in the industry, Tom Meredith commented that the company takes income dollars to the bank, not percentages. The clear trend in the industry toward competitive pressures, but Dell is looking at moving the topline higher and dealing with generating operating income dollars. By taking care of the revenue side of the business, they will grow absolute income and worry about the percentage of sales secondarily.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.