back to article Michael Dell serves up stump speech to settle sceptical investors

Michael Dell has touted his behemoth's performance in a pitch supporting the company's return to the stock exchange. The Dell Technologies chairman and CEO cranked up the hype machine in an analyst presentation Tuesday morning, in what outlets like Bloomberg described as an attempt to shore up support for the float among " …

  1. Doctor Syntax Silver badge

    "the company still has a relatively low proportion of subscription revenue."

    What is it that makes people think that making stuff and just selling it is a problem? Yes, I know as a CFO you'd like people to pay you money in perpetuity but from a punter's perspective would you prefer a one-off cost or a millstone?

    1. DougS Silver badge

      Wall Street has decided it likes recurring revenue more than outright purchase, because predicting how many Dell servers or iPhone X people buy is too hard for them.

      Nevermind that if business changes and people buy fewer Dell servers, they might also stop subscribing to Dell services. I guess analysts haven't really had to deal with that, since the "subscription revenue" model as it applies to the IT/CE world has only gone up - that's one of the reasons Netflix is so overvalued.

      They'll fall out of love with it once they figure out it is also possible for subscription revenue to decline.

  2. Anonymous Coward
    Anonymous Coward

    the company was carrying nearly $50bn in debt

    That's one of the things I just don't understand about business - how can a company be that much in debt and not be considered to be a complete basket case?

    1. Mark 85 Silver badge

      Accountants and they way they shuffle the paperwork and numbers so that it all looks good on paper. What's the reality is open to debate.

    2. 2Blockchainz

      Interest accrued in debt is tax-deductible, so it can be a relatively cheap form of capital, especially during times such as these when interest rates are historically low.

      What is crucial is the ability to erase that debt when advantageous to do so! Predictable, capital intensive firms typically find debt a cheaper form of capital than issuing of equities. Plus, Michael Dell won't dilute himself by issuing shares.

    3. Roj Blake Silver badge

      Re:how can a company be that much in debt and not be considered to be a complete basket case?

      In much the same way that person earning £50k/year can have a £350k mortgage, a £20k car loan, and £50k in student loans and not be considered profligate.

    4. Sirius Lee

      You earn £50K but have a mortgage of £400K (debt) on a house. Why is that you are not a basket case? Because the house is an asset that you hope (and lenders believe) will gain in value. Even if it doesn't, the mortgage payments will be similar to or less than the rental you would pay on a similar property. People with money lend you the £400K on the basis that you pay interest on that loan.

      Similarly, the $50bn of debt has been used to purchase assets - VMWare for example - that may gain in value (if someone wants to buy them). However, unlike your mortgage which is 8 x your revenues, the Dell debt is far less than their revenues. In the meantime those assets will be expected to earn their keep by generating revenue. And it seems they are if, as claimed, their positive cash flow is able to generate $14bn this year. Dell is probably charged 5% for the privilege of borrowing $50bn but it seem the assets acquired are generating cash at a greater rate.

      He probably wants to go public to convert some or all of that debt (which *has* to be repaid and could be called in) into equity from new shareholders (which doesn't have to be repaid and can't be called in). Much better from a manager's point of view but not necessarily so good from a shareholder's perspective. Moreover, that debt will have been borrowed on the basis that it is used for specific purposes. Equity funds can be used more flexibly so long as the company keeps to the business model outlined in the prospectus. Again, much better for the managers.

      So the battle is to show prospective investors that their money is safe in Dell. That they will more than get their money back. That they are generating $14bn in profit on $97bn in revenue and that is could be better if they were not paying interest. That there is room to make more acquisitions using shareholder money to make even more profit.

  3. Roj Blake Silver badge

    "There were also reports at the time that the deal wasn't popular among hedge funds."

    Sounds like the sort of deal that's good for the company in the long-term then.

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