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Dell vs. Gateway: A Financial Comparison of The Mighty Oak and The Acorn

In this detailed analysis, we compare Dell and Gateway's financial performance from 1999 to 2004, examining key metrics such as sales, net income, and stock prices. Dell, referred to as "The Mighty Oak," showcased impressive growth with a 1999 sales figure of $25.3 billion, while Gateway, dubbed "The Acorn," lagged behind with sales of $9 billion. Despite challenges, Gateway remains viable with a focus on restructuring. This analysis explores the strengths, weaknesses, and future prospects of both companies in a rapidly evolving tech market.

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Dell vs. Gateway: A Financial Comparison of The Mighty Oak and The Acorn

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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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