Annex Bulletin 2005-14                      May 13, 2005

Excerpts from Confidential Client Edition

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INDUSTRY TRENDS

Analysis of Dell’s First Quarter Fiscal 2006 Business Results

Dell Rings the Bell

Stock Surges on Double-digit Growth in Most Markets and Segments

PHOENIX, May 13 – Dell rang the bell this morning on the New York Stock Exchange with its first quarter fiscal year 2006 business results.  Not only did Dell’s stock surge by over seven points; it also pulled by the bootstraps various other competitors’ shares in the process (see the chart).  The “Annex 19 IT Index” was up 1.5% for the day even though the Dow Jones industrials declined almost 50 points (see the chart).

And no wonder… Dell’s net income was up 28% in the quarter to $934 million on a 19% revenue surge to $13.4 billion.  The company also set a new quarterly record with $2 billion of stock buybacks, much more than the company would need for entire year’s stock options, according to Jim Schneider, its CFO (also see “The Phantom Is Back,” May 2005).

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Horizontal Segments.  Nearly all Dell market and business segments grew in double digits.  The only exception was the PC desktops, the company’s largest business segment, whose revenue increased by 6% to $5.3 billion, while its unit shipments rose by 14%.

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Geographies.  Europe was Dell’s best-performing region in the first quarter.  Its revenues surged by 20% to $3.17 billion.  It was the company’s sixth successive quarter of 20% or higher revenue growth on the Old Continent.

Services revenue in Europe was up 55%; server shipments were up 23% (Dell claims to have gained 1.2 points of market share to 19.6%); storage revenue was up over 60%; mobile products’ revenue was up almost 40%; software and peripherals’ revenue was up 35%.

In short, business in Europe is great (!) – from Dell’s perspective.

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Outlook

“More of the same” is basically a summary of Dell’s future outlook.  Indeed, why change a winning strategy.  If Dell stays the present course, we figure it may be an $80 billion-company by 2008.  And Dell has a chance of achieving that without any major strategy changes or fancy new corporate restructurings or acquisitions.

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The record $2 billion first quarter stock buybacks suggest that Dell is not wavering from that course, either.  On the contrary…

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Happy bargain hunting!

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