There's nothing like finishing off the week with a little Foolish rancor and acrimony. That's what we've got with today's Duel over Oracle. Tim Beyers thinks it's a circus but there's still value in the stock. W.D. Crotty thinks the company is just one big migraine. Check out their arguments, and then vote for the one you think is better.

In today's Motley Fool Take:

Dell's Secret Stash


Richard Gibbons

Value investors often look beyond the core business to find hidden values. For instance, both Toys "R" Us(NYSE: TOY) and McDonald's(NYSE: MCD) have well-known consumer businesses. But when investors examine companies in-depth, they will stumble upon the significant value in these companies' real estate holdings.

Dell (Nasdaq: DELL) is a Motley Fool Stock Advisor pick that's been performing particularly well lately relative to competitors such as Hewlett-Packard(NYSE: HPQ), so it's especially enjoyable rooting around Dell's dusty attic. There we discover, hidden away under a pile of old Intel(Nasdaq: INTC) 386DX processors, that Dell's business is becoming almost as much about insurance as it is about computers.

"Great!" you say, "I've been looking into getting life insurance." But no, the insurance that Dell sells is warranties on computers, insuring against the computer's death, not a person's. However, it is the same kind of business as other insurers. Dell collects money now, reserves a portion to pay for future repairs under the warranty agreements, and keeps the rest as profit.

And how much profit is there? Dell's 10-K for fiscal 2003 shows that last year Dell received about $2.55 billion in revenue from warranties, or about 6 percent of its total revenues. Dell doesn't break out its reserves for repairs but has in previous years. Thus, it's possible to approximate the reserves by assuming that they are roughly the same percentage of warranty revenue -- or alternately total revenue -- that they were in 2002. This assumption might overestimate reserves slightly, since Dell's expenses servicing warranty claims as a proportion of warranty revenue and total revenue have declined slightly. Dell is becoming more efficient at servicing warranties.

This calculation yields reserves in the range of $1.55-$1.6 billion, or gross profits on warranties of almost $1 billion. Looking at it another way, profits from warranties comprise roughly 13% of Dell's gross profit or about 28% of its operating profit. The operating profit number is particularly relevant when you consider that the bulk of Dell's operating expenses are likely related to computer manufacturing rather than warranties.

Thus, Dell is known as a great computer maker, but investors should also be aware of the importance of its lower profile but much higher margin warranty business.

Fool contributor Richard Gibbons is waiting indefatigably for your comments. He does not own shares of any of the companies in this report.

Shameless Plug: TMF Money Advisor

Every once in a while, we all need a little help from our friends. That gets to heart of what it is to be Foolish and is a big reason why The Motley Fool exists in the first place. But sometimes a community doesn't quite do it, and we need a little one-on-one. That's where TMF Money Advisor comes in. Take an advisor for a spin for free. It can't hurt, and it sure can help.

E-commerce Flourishes


Alyce Lomax

(TMF Lomax)

The latest data from the U.S. Department of Commerce further bolsters what we have all suspected: E-commerce sales are increasing. Not only might one suspect that consumer confidence has been bolstered since last year, there are currently far fewer barriers to shopping via the Web than was previously the case.

According to the Washington Post, online sales have increased 23.1% since the comparable quarter last year to a grand total of $15.65 billion between April and June.

Meanwhile, the sector still has plenty of room to grow; online sales represent a mere 1.7% of all retail sales. (That's slightly down on a sequential basis, as the quarter before clocked in at 1.9% -- but with summer vacations and other activities, most people probably have ample opportunity to unplug and purchase in the "real world.") Overall retail sales increased 10.1% in the quarter.

In June, my Foolish colleague Rick Munarriz examined similar data. As we have discussed before, lots of folks are upgrading their computers with more memory and processing power than many even need. A recent survey suggested that a bit more than half of all Web surfers have made the switch to broadband.

Rick also made the point that daunting gas prices may give some shoppers more reason to browse and buy from home (with the caveat that, at some point, we all foot the bill for rising fuel costs).

Companies such as AMZN), OSTK), and eBay(Nasdaq: EBAY) are becoming tried-and-true parts of people's shopping experiences and likely will continue on their upward trajectory. The rising popularity of e-commerce also explains why Yahoo!(Nasdaq: YHOO) and Google(Nasdaq: GOOG) have been among those who have made pushes into comparison shopping.

Such an environment could improve many fortunes; the economic climate is one reason why I launched a defense of Hidden Gems pick RedEnvelope(Nasdaq: REDE).

Meanwhile, the many bricks-and-mortar retailers that have initiated online shopping sites should be rewarded for their efforts soon. This week, the New York Times reported that Vogue is enhancing its Web site to allow shoppers to buy the fashions and cosmetics included in its September issue, bridging the gap between its print and online versions.

One barrier, however, may be recent concerns about Microsoft's(Nasdaq: MSFT) Internet Explorer's security issues, though I suspect many people trying to conduct safer Web shopping have likely switched to Mozilla's Firefox browser or one of the other non-Microsoft options available for the download.

Today's word is just another example of how far we've come since the Commerce Department first began tracking the data (Internet shopping represented only 0.7% of retail sales in 1999, baby). If trends continue, it bodes well for new and old alike in the realm of online shopping.

Alyce Lomax does not own shares of any of the companies mentioned. Amazon is probably her favorite shopping venue, as it always has the books and music she's looking for, regardless of how obscure.

Discussion Board of the Day: What to Wear?

Have you helped Nordstrom's bottom line this year, or do you prefer to go shopping somewhere else? Can you find good values at upscale department stores? How do you seek out the best threads at the best prices? All this and more in the What to Wear? discussion board. Only on

United Takes Aim at Retirees


Bill Mann (TMF Otter)

The story for bankrupt air carrier United Airlines (OTC BB: UALAQ) is a simple one: It doesn't have enough cash on hand to take care of all of its obligations. That, after all, is why it sits in bankruptcy protection. It has leasehold obligations on its planes to Boeing(NYSE: BA), General Electric(NYSE: GE), and a million other financing groups; it has operating expenses that continue to skyrocket as fuel costs surge. It has other sundry debts -- merchant liabilities, mostly. And yes, United Airlines has a total pension fund shortage of $8.3 billion to go along with scheduled payments of $725 million for 2004, $4 billion through 2008. So United came up with a plan: Cease funding its pension plans.

Man, take a look at what's going on at United, US Airways(Nasdaq: UAIR), where liquidation is a rumor with some credibility attached, and Delta(NYSE: DAL), which has a brutal restructuring of its own. Don't even get me started on the disaster that is European aviation. This industry burns through shareholder equity like no one's business.

United Airlines' management would dearly like to emerge from bankruptcy, and the process here is to work among all of the creditor classes to come up with a plan that will give the company financing and a capital structure that will allow it to operate. The other choice is liquidation -- not a great outcome. The problem in arranging financing is that those footing the bill in arranging financing aren't very interested in relaunching a business that will simply destroy more capital. United, like many companies before it, might be worth more to creditors broken up and sold for scrap than as an operating entity. So the company has to come up with a plan that shows creditors that it has a reasonable chance to gain a return in the event the company operates once again. A $4 billion cash obligation along with an $8 billion existing shortfall in United's pension plans make the case for continuing United as an operating company much tougher.

But United is desperate. Last month the federal government denied the company financing that would have allowed it to emerge from bankruptcy, sending it on the chase for commercial sources for about $1 billion.

United's financing facility includes a provision that prohibits the company from making contributions to its pension plans -- covering about 119,000 current employees and retirees -- without consent by its lenders. United has already missed a required payment, which was due in July. The Pension Guaranty Benefit Corporation (PBGC), the government-provided insurance corporation for pensions, thinks that United's election to do so not only puts United's pension in jeopardy but also violates the Employee Retirement Income Security Act (ERISA). If the judge overseeing United's bankruptcy proceedings approves the company's plan, liability for payment of the employee pensions could fall to the PBGC. The amounts to many United retirees would be reduced as its pension benefits exceed that which is guaranteed by PBGC. Further, if United succeeds in sidestepping its payments, PBGC thinks that the precedent could put benefits of other pensioners around the country at risk.

What a total mess. United noted in its filing that it "would like nothing better than to keep the pension plans intact." This, of course, is not quite true. What United would like to do more than anything else is to emerge from bankruptcy. Obviously, the company has obligations that far outstrip its ability to fulfill them. UAL notes that it hopes to gain an agreement from various unions that will allow it to meet its pension obligations and operate.

But should it not be able to, and should it go forward with the plan to terminate its pensions, the damage in its relationship with employees will likely be forever destroyed.

United doesn't have the money. It follows US Airways, and it also follows Lucent(NYSE: LU), which had to crank back on the amount of post-retirement benefits it pays its retirees. These are the perils of companies that once upon a time were large and important -- they shrink, but their obligations don't. At this point United's choices are to either hose its retirees or go out of business for good. I vote for B.

Bill Mann owns none of the companies mentioned in this story but has warned investors in the past to pay attention to companies' pension liabilities.

Quote of Note

"The ancient Greek definition of happiness was the full use of your powers along lines of excellence." -- John F. Kennedy

More on Today

Paul Elliott helps you find out where the "smart money" goes in 3 Inside Value Tips.... In Second Chance on Lone Star, Matt Richey weighs in on Lone Star Steakhouse's round-trip from $22 to $33 back to $22.... A Netflix mailer might be black and white and red all over, but that's not the only punch line, Rick Aristotle Munarriz says in Is Netflix Doomed?.... In Matt Logan's Value in a Diverse Team, Legg Mason's Mary Chris Gay explains how a seasoned team can boost success.

In other news:

For a list of all our stories from today, see our Today's Headlines page.