Dueling Fools
July 07, 1999

Farmers in the Dell
The Bull Rebuttal
by Yi-Hsin Chang ([email protected])

"Arrogance kills." Wow, if we were to follow Rick's sage advice, we wouldn't have any good companies to invest in. "Arrogance" -- some would call it confidence -- is basically a prerequisite to becoming the CEO of a respectable company. Good CEOs are pioneers, visionaries; they must exude confidence to lead their company to new heights.

Michael Dell is definitely a visionary. The company that bears his name is living proof of his hard work and genius. In 1992, Dell became the youngest CEO of a company ever to earn a ranking on the Fortune 500. He's been named CEO of the Year by various publications. I wouldn't call Michael Dell arrogant; I'd call him a damn good businessman.

As for Dell filing to sell four million shares of the company, any experienced Dell watcher -- or stock watcher for that matter -- would know that Michael Dell, like many senior executives across corporate America, sell shares on a regular basis regardless of price. Any irregular buying or selling would, in fact, raise eyebrows. In March, Michael Dell sold 8 million shares at $41.41 a pop.

Rick claims that Dell's competitors have caught on to its business model, but it's not a matter of "catching on" to a simple concept -- selling directly to customers and bypassing the middleman. The key here is execution. Funny that Rick would raise Compaq as a competitor who's "caught on." This is the same Compaq that recently booted its CEO and CFO after pre-announcing a disastrous first quarter with earnings per share less than half of analysts' expectations. Compaq has a substantially lower market cap than Dell precisely because its future is so uncertain.

Compaq and others may try to copy Dell's business model, but few will be able to mimic its efficiency and overwhelming success. It has six days supply in inventory! And this is a company that continues to improve its efficiency, whether it's doing more of its business online or working to automate its assembly line. Others will be able to make PCs and sell them directly to customers, but they won't be able to do it as efficiently as Dell can.

Boy, only Rick can make something as sensible as diversifying and expanding your product line sound like a bad thing. I don't think diversification means that Dell is becoming "just another all-purpose computer company." It's becoming a bigger company, offering more to its customers.

PCs are becoming a commodity of sorts, but Dell offers uncompromisingly good service to its customers -- something that's not a commodity. What's more, it recently opened an online superstore selling computer hardware, software, and peripherals at Gigabuys.com. Plus, the low-end computers Rick talks about are not in the same league as Dell computers. It's like saying Hyundai is going to eat into Lexus sales. We're talkin' apples and oranges here.

Don't believe Rick's mischaracterization of Dell and its prospects. Frankly, I'll take Michael Dell at his word: "The competitive advantages of our direct business model have never been as distinct and extensive as they are today. We expect to continue to grow at a multiple of the industry rate, and to do so profitably." That's not arrogance; that's a company with a strong leader at its helm.

Next: The Bear Responds