TAKING STOCK

They can't have a sucker without 'u'

by Malcolm Berko

Dear Mr. Berko:
I'm considering the purchase of 200 shares of Dell computer or 25 shares of Apple and I can't make a decision. I even thought about buying 12 shares of Apple and 100 shares of Dell and still can't make up my mind. They're both excellent companies with excellent balance sheets and make an excellent product though Dell is quite a much larger company about twice the size of Apple in revenues. What do you think?
A.P.
Waukegan, Ill.

Dear A.P.:
I've always imagined a "dell" to be a small, secluded, wooded valley, a tiny stream running through surrounded by trees and turf and a place of rest for farmers after a demanding day in the field. In 1984, a high-tech company from Round Rock, Texas, making desktops, personal computers, workstations, networking products, laptops, storage solutions, disk and tape backup systems and related software, trashed my bucolic and romantic image.
And since 1984 this iconoclastic technology company has put a computer in almost every farmer's home and nearly every corporate desk, cubicle, library, school system and almost every home in the U.S. of A. This year, Dell Inc. (DELL-$24.82) expects to sell some $64 billion to $65 billion of "stuff & things," software and peripherals, servers, and networks and desktops and PCs. And this year, DELL expects its low, single-digit revenue growth to segue into its 10th consecutive year of declining net profit margins as well as a significant deterioration of its return on equity.
DELL will now try to reduce its expenses by at least $3 billion. So management will close some factories in Texas, adjust product design, tweak its current business plan to lower costs, lay off some 8,000 employees and sell some of its receivables financing. Efforts to boost top-line growth and lower costs will be halfhearted and may only be marginally successful. But that's not going to be enough to compete with Apple Inc. (APPL-$191.62).
DELL's operations are inefficient and its employees are poorly productive, especially when compared to lads and lasses at APPL. APPL's employees are twice as productive as DELL's employees. Each of DELL's 88,000 workers produces about $750,000 in annual revenues and contributes some $37,000 to DELL's bottom line. Meanwhile, each of APPL's 23,000 employees produces about $1.6 million in revenues and contributes $200,000 to APPL's bottom line. For every dollar of sales, APPL nets 15 cents while DELL just nets a niggardly nickel.
Meanwhile, APPL is getting enormous help from, of all people, Microsoft Corp. (MSFT-$30.10) another listless, go-nowhere, rust-belt tech company. Vista, MSFT's latest version of its Windows operating system, is a bust that should bite the dust and may turn out to be one of the biggest missteps in software history. My new desktop came with the Vista operating system, which is a real downer. The last time I felt so dispirited was in the second week of October of 1997; when my dog died, I was audited by the Internal Revenue Service and my identity was stolen.
Vista is cumbersome, vexatious, tiresome, klutzy and has more glitches than Tom Sawyer had freckles. It has so many icons, useless functions and ridiculously redundant add-ons that fade-in, fade out, gasp and fizzle that I came close to loading my 12 gauge and pulling the trigger. This operating system had to be designed by a committee of obsessive-compulsive MSFT retards.
My office staff almost staged a revolt and begged to go back to Windows XP and we did. And I imagine that other users have similar problems which may be one reason APPL expects a significant increase (30 percent) in second-quarter revenues even in this recession economy.
The corporate market is now becoming an APPL market as employees are requesting permission to use the Mac. APPL is perceived as a cool company; DELL comes across as a grandfather clock with arthritis. APPL's iPhone sales are sizzling, the iPod digital music player is going gangbusters and APPL's retail stores are exposing a new generation of consumers (me included) to enormous breadth of the company's product line. And there's exceptional opportunity for APPL to expand overseas where its growth has been anemic but where the company intends to generate new business.
APPL's net profit margins have almost tripled in the past decade to an expected 15 percent this year while return on capital and return on equity have improved enormously. In the past 10 years the stock has split 2-for-1 twice, increased in value over twentyfold, and talk is that APPL might split 2-for-1 later this year. Many board members would like to see a split but it seems that APPL Chairman and Chief Executive Officer Steve Jobs opposes the idea - for now!
The choice is an easy one for me. DELL is mired mud and malaise and management needs a crane to lift it out of the doldrums. APPL has the momentum, the creativity, the excitement and esprit de corps that could easily send DELL back to the farm in Round Rock, Texas.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.
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