1 Dell Inc. - still a growth company? Stefan Eisner December 1, 2005

2 Outline  Company Facts  Portfolio Position  Business Strategy – key tenets  Segmentation by product & geographical  Industry – current developments  Stock Facts  Valuation  Recommendation

Stefan Eisner December 1, History 1984Michael Dell founds Dell Computer Corporation simple concept: selling computer systems directly to customers 1987International expansion -> opening of subsidary in UK 1988IPO (3.5m shares at $8,50 each) 1989Company introduces first notebook computer 1990Opened manufacturing center in Limerick, Irland -> serve European, Middle Eastern and African Markets 1993Joins ranks of the top-5 computer system makers worldwide 1997Dell introduces its first workstation systems 1998Dell introduces its PowerVault storage products 2000Company sales via Internet reach $50 million per day 2001For the first time, Dell ranks No. 1 in global market share 2003Dell enters consumer electronics

Stefan Eisner December 1, Company Facts  Headquarter: Round Rock, Texas  Chairman of the Board: Michael Dell  CEO, President: Kevin B. Rollins  Revenues last four quarters: $54,182m  Net Income last four quarters: $3,565m  Broad range of products & services –Enterprise systems (servers, storage, workstations, networking products) –Client systems (notebook, desktop computer systems) –Printing and imaging systems, software and peripherals and global services  Employees: 63,700  Financial Year End: January

Stefan Eisner December 1, Portfolio Position  Bought 500 shares at on 12/10/99  Cost of position: $20,  Closing price 11/30/05: $  Value of position: $15,  Change: -$5, (-27.78%)  Reviewed on December 2002 and November 2004 (Hold)  % of Portfolio: 5.31%  Jack Henry and Macrovision are also in the Technology Sector

Stefan Eisner December 1, Business Strategy – key tenets (I)  Direct relationship is the most efficent way to the customer  Dell‘s „direct business model“ eliminates wholesale and retail dealers  No expenditures associated with the retail channel  constant flow of information about customers’ plans and requirements  enable Dell to continually refine its product offerings  Custom-built products and custom-tailored services  Build-to-order manufacturing process  Turn over inventory every 4 days on average and reduce inventory levels  Rapidly introduce the latest relevant technology  Rapidly pass on component cost savings directly to customers

Stefan Eisner December 1, Business Strategy – key tenets (II)  Low-cost leader  Efficient supply chain management and manufacturing organization  Concentration on standards-based technologies  Direct business model  Pass those savings to its customers  A single point of accountability for its customers  Offers an array of services  Standards-based technologies deliver the best value to customers  Provide customers with flexibility and choice  Benefit of extensive research and development

Stefan Eisner December 1, Sales & Marketing Channels of Distribution  Sales representatives  Telephone-based sales  Online sales through Marketing programs for specific customer groups  Large business & institutional customers  Field sales force, account teams (system engineers and consultants)  Small-to-medium business & consumers  Advertising on television, Internet, print media and by mailing publications  Dell Direct Stores: view Dell products in person and purchase with assistance  Goverment, healthcare and education market  Specific sales and marketing programs

Stefan Eisner December 1, Manufacturing, Materials Supply & R&D Manufacturing  Build-to-order manufacturing process  Process consists of assembly, software installation, functional testing and quality control  Locations: US(3), Brazil, Ireland, Malaysia, China Materials Supply  Large number of suppliers  BUT Intel Corporation as a sole source supplier of processors and Microsoft sole source supplier for various operating systems and application software products R&D  Very low expenses: $464m for fiscal 2005 (0.94% of Revenue)  HP (4.3%), IBM (5.9%), Sun (16.3%)  Company uses partners (e.g. Intel, Microsoft, EMC, Lexmark) to develop technology

Stefan Eisner December 1, Segmentation by product & services categories Beginning Q1-FY06 supplemental revenue reporting by product & services Q3-FY 06 (total revenue: $13.9 billion)  Desktop PC‘s still most important, but decreasing

Stefan Eisner December 1, Segmentation by product & services categories Beginning Q1-FY06 supplemental revenue reporting by product & services Q3-FY 06 (total revenue: $13.9 billion)  Desktop PC‘s still most important, but decreasing

Stefan Eisner December 1, Geographical Segmentation

Stefan Eisner December 1, Geographical Segmentation

Stefan Eisner December 1, Dell‘s Market Share PC‘s* Based upon IDC Worldwide Quarterly PC Tracker

Stefan Eisner December 1, Industry – current developments (source: report Mintel cooperation) Demand for Mobility  First time in April 2005 laptop sales surpassed desktop sales Increasing broadbrand penetration  Consumer use their computer more and more for multimedia activities Declining Prices  Increasing number of units shipped, but declining overall revenues  Average computer prices fell nearly 35% between 2000 and 2005  Prices have continued to fall, especially laptop prices Low Cost – defining aspect of competition  Most important advertising in newspapers circulars Chinese imports continue to grow  leading computer equipment importer to the U.S.  From $11.9 billion (2002) to 29.5 billion (2004) %  Lenovo, a chinese company, bought IBM‘s PC division in early 2005 Municipal wireless infrastructure drives notebook sales  100+ cities implementing wireless infrastructure  1000+/- cities working on plans for wireless Internet networks

Stefan Eisner December 1, Industry – US Home Computer market forecast

Stefan Eisner December 1, Share Buyback YTD have repurchased 138 million shares  More than 3x the stock options Dell expect to grant for the full year Plan to spend at least $1.7 billion in Q4  Will continue in the future, because Dell has a high Free Cash Flow, but very few investment opportunities OR Dell will start to pay dividends

Stefan Eisner December 1, SWOT – a overview Leading market position Notable clientele (large companies, state goverments) Superior business model Strong operating performance Cash Cow No traditional pension plans Partnership with Microsoft (creating single tool managing hardware and software) Leading market position Notable clientele (large companies, state goverments) Superior business model Strong operating performance Cash Cow No traditional pension plans Partnership with Microsoft (creating single tool managing hardware and software) Single source suppliers Low R&D spending Poor customer service Problems in China Single source suppliers Low R&D spending Poor customer service Problems in China INDUSTRY Growth in the digital color printer maket Sale of IBM‘s PC Business to Lenovo (Europe/US) Trend to more modular, standard products and clusters of less expensive machines (server&storage) COMPANY Printer Replacement business Expansion of product portfolio (consumer electronics) International Expansion Entering new markets through partnership INDUSTRY Decreasing PC prices Desktops revenues will decrease heaviley until 2010 Porter‘s five forces: - High Industry Rivalry - High Bargaining Power of Buyer New CEO at HP -> cost reducing Sale of IBM‘s PC Business to Lenovo (Asia) Asian „No-Name“ producer Increasing component prices S OT W

Stefan Eisner December 1, Competitors

Stefan Eisner December 1,  Share price: $30.15 (52-Week range $28.62-$42.57)  Market cap: $72.29B  Trailing P/E:  Forward P/E (fye 28-Jan-07) :16.94  Dell has never paid a dividend  Sector: Technology  Industry: Personal Computers  % held by Insiders: 9.85%  % held by Institutions: 65.5%  Ticker: DELL Stock Facts Source: Yahoo!Finance 11/30/05

Stefan Eisner December 1, Stock Performance last 5 years

Stefan Eisner December 1, Stock Performance last 2 years vs Competitors Vs: Hewlett Packard, IBM, Gateway

Stefan Eisner December 1, Valuation - Beta

Stefan Eisner December 1, Valuation – 3 Scenarios Verification of Forecast and Assumptions of Segments by: Calculating ratios Computing Implied Growth rates of Geographical segments Reviewing sales development

Stefan Eisner December 1, Valuation – sensitivity analysis (normal)

Stefan Eisner December 1, RECOMMENDATION - Considerations Source: Yahoo!Finance 11/30/05 HOLD  largest geographical segment (American Business Units) growing and operating margin increases  Growth opportunities outside the US  Still superior business strategy  Expansion to higher margin products (printer replacement, storage&servers, business customer…)  Share buyback  Almost no debt  After the decrease in the stock price, lower growth rates are partially contained in the price SELL  Other geographical segments only flat or negative Operating income growth  Problems in China, UK…  Increasing rivalry by Asian companies  pricewar desktops and mobility products, which are almost two thirds of the revenue  no further investment opportunities  No long term-guidance of the company  historic high double digit growth rates are improbable

Stefan Eisner December 1, RECOMMENDATION - SELL SELL the entire position of Dell shares (500)  DCF only slightly above actual share price  High level of uncertainty about Dell futures –Diversification of product portfolio and further expansion outside the US CAN be successful, but it MUST be successful to maintain high growth rates –No guidance of the company for next year  Still a growing company, but the high growth rates of the past are improbable  If we follow our investment approach, there are better companies to own

Stefan Eisner December 1, Question & Comments

Stefan Eisner December 1, Desktop Products Desktop Computers  Optiplex line: corporate, institutional and small business customers  Dimension line: small businesses and home users Desktop Workstation  Precision Line: professional users demand exceptional performance  Cash-cow/ mature business (especially in the US)  No. 1 Desktops Worldwide market share: 18,7% (Q2-CY05) Q2 Growth-Rate: 2% Unit Growth-Rate: 17%

Stefan Eisner December 1, Notebook Computers (majority of revenues in this segment)  Latitude line: addresses business & organizational needs  Inspiron line: small-medium sized businesses, individuals  No. 1 worldwide: Market share: 18,5% (Q2-CY05) Mobile Workstation  Precision Line: professional users demand exceptional performance MP3-Player (DJ’s) & PDA (Axims)  MP3-Player  Notebooks selling much faster than desktops Mobility Q2 Growth-Rate: 20% Unit Growth-Rate: 47%

Stefan Eisner December 1, Software & Peripherals Dell Branded  Printers, monitors, plasma and LCD television, projectors Third party  Printers, software, digital camera and other products Printing & Imaging Systems  Dell started selling Printers in 2003  Majority of Printers are based on Lexmark Technology  Extremly aggresive prics for printers  build market share in the higher-margin toner replacement business (2/3 of HP‘s operating profit)  All printers feature Dell Ink/Toner management system software  Unit growth Year-over-year second quarter: 77% (No. 2 in the US) Digital Home Entertainment Market  Diversification of Dell traditional markets  Sucess important for growth Q2 Growth-Rate: 35%

Stefan Eisner December 1, Servers & Networking Servers (majority of revenues in this segment)  PowerEdge line: industry standard servers (x86 architecture)  No. 2 worldwide: Market share: 27.8% (Q2-CY05) Networking Products  PowerConnect switches  Competitive prices to create additional sales of  storage products  Higher margin enhanced services Q2 Growth-Rate: 9% Unit Growth-Rate: 25%

Stefan Eisner December 1, Enhanced Services Managed Services  IT management services Professional Services  Help business utilize emerging technology Deployment Services  Configure and deploy Dell systems and products into IT environment Support Services  Varietey of customized services and support programs e.g. warranty upgrades and services Training and Certification Services  Online training programs and IT certification Q2 Growth-Rate: 41%

Stefan Eisner December 1, Storage Strategic allicance with EMC  Dell/EMC storage products  year alliance; 2003 extended for additional 2 years Own line  Dell PowerVault Products  External storage, tape backup products, network attached storage, fibre channel array, storage area networks and rack solutions Q2 Growth-Rate: 26%