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Gateway versus Dell

Gateway versus Dell. The Mighty Oak and the Acorn. The Mighty Oak. 1999 Dell Sales $25.3 Net Income 1.6 EPS $0.61 Total Assets $11.6 Total Equity 5.3 Stock Price $51.00 PE Ratio 83.5 times. The Mighty Oak. 2004 1999

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Gateway versus Dell

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  1. Gateway versus Dell The Mighty Oak and the Acorn

  2. The Mighty Oak 1999 Dell Sales $25.3 Net Income 1.6 EPS $0.61 Total Assets $11.6 Total Equity 5.3 Stock Price $51.00 PE Ratio 83.5 times

  3. The Mighty Oak 2004 1999 Dell Sales $49.2 $25.3 Net Income 3.0 1.6 EPS $1.39 $0.61 Total Assets $23.2 $11.6 Total Equity 6.5 5.3 Stock Price $42.14 $51.00 PE Ratio 35.6x 83.5x

  4. The Acorn 1999 Gateway Sales $9.0 Net Income 0.4 EPS $1.32 Total Assets $4.2 Total Equity 2.4 Stock Price $72.06 PE Ratio 54.6 times

  5. The Acorn 20041999 Gateway Sales $3.7 $9.0 Net Income ( 0.5) 0.4 EPS ($1.45) $1.32 Total Assets $1.3 $4.2 Total Equity 0.2 2.4 Stock Price $6.01 $72.06 PE Ratio N/A 54.6x

  6. The Oak and the AcornMost Recent Twelve Months DellGateway Sales $52.8 $3.7 Net Income 3.5 0.04 EPS $1.39 $0.01 Total Assets $22.6 $1.8 Total Equity 5.5 0.3 Stock Price $33.15 $2.58 PE Ratio 23.9x N/A

  7. The Mighty OakSince 1999 Net Income $13.2 billion Gross Profit 19% of Sales Operating Expenses 10% of Sales Repurchased Treasury Stock $14.6 billion PP&E has doubled and is only 45% used Cash & Investments of $13 billion A/R = 30 days Inventory = 4-5 days No borrowed debt D/A = 76%

  8. The AcornSince 1999 Net Loss $2.1 billion Restructuring and Transformation $1.9 GP to Sales = 10% Treasury Stock = $23 million PP&E dropped by 50% 86% consumed Cash and Investments = $567 million A/R = 35 days Inventory = 28 days Borrowed funds = $350 mill D/A 86%

  9. Choose the Acorn Gateway has survived Gateway is a new company with experience Dell is overvalued at $33.15 – 23.9x Future Growth Rate 14% 10% PEG 1.70 2.39 Future EPS 2.68 2.24 Future Price 37.52 22.40 Capital Gain (Loss) $66,000 ($162,000) ROI 2.5% (7.6%)

  10. Choose the AcornThe Street Knows Dell PE Ratio Present 2004 2001 1999 23.9 35.6 59.5 83.5 Dell’s only Investment $14.6b to buy 381m shares of DELL To date this investment has lost $2.0b Integration is an unknown

  11. Choose the Acorn March 11, 2004 – Acquisition of eMachines Inc. April 9, 2004 – closure of all 188 retail stores and introduction of products to more than 7,000 retail domestic locations (Best Buy, Circuit City, Staples) April 7, 2005 – Microsoft Agreement $150 million funded advertising thru 2008

  12. Choose the Acorn Gateway is currently trading at $2.58 p.s. Appreciation Price Gain 2.5% $2.92 $66,000 5% $3.29 $138,000 10% $4.16 $305,000 15% $5.19 $505,000 Gateway 52 wk high of $6.92 would result in a gain of $841,000!

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