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Did Dell Excel?


Jeff Hwang

Not bad. That's probably about the worst thing that can be said about Motley Fool Stock Advisor selection Dell Computer's(Nasdaq: DELL) third-quarter report. After the bell yesterday, Dell posted third-quarter revenue growth of 18% to $12.5 billion. Meanwhile, earnings per share jumped 27% to $0.33, or $846 million.

And Dell happily points out its own merits.

Overall, the company shipped a combined 8 million servers, notebook computers, and desktop computers, notching an industry record. Powered by a 35% increase in notebook volume sales, Dell's worldwide shipment growth of 22% doubled that of the rest of the industry, a list that includes Hewlett-Packard(NYSE: HPQ), Gateway(NYSE: GTW), International Business Machines(NYSE: IBM), and Apple(Nasdaq: AAPL). Dell also doubled the growth rate of the rest of the industry in the Europe, Middle East, and Africa region, while tripling that figure in Asia-Pacific and Japan.

Revenues also grew 27% in the Europe, Middle East, and Africa region, while climbing 25% in Asia-Pacific and Japan. Growth in the United States was driven by a 20% increase in spending by business customers.

Declining component prices helped Dell pass cost savings to the consumer, as it offered big discounts and boosted sales. The company also passed on those savings to its shareholders, with operating profit margins clocking in at 8.8% -- the highest in four years. In addition, Dell spent $1.3 billion to repurchase 38 million shares, and so far has bought back a total of 97 million shares this year.

The company also noted that it was on track to sell over 5 million printers this year, while booking over $1 billion in imaging and printing revenue. On a conference call (transcript provided by Thomson StreetEvents; subscription required), Dell Chief Financial Officer Jim Schneider said that laser printer sales accelerated 458% year over year, with inkjet printer sales up 201%. The company is aggressively attacking the market for color laser printers, having introduced three new color laser printers during the quarter.

CEO Kevin Rollins added that the company was on track to reach the $60 billion in annual revenue mark next year -- a year ahead of schedule. Separately, he also said that Dell -- which has long used Intel(Nasdaq: INTC) chips exclusively -- is considering using AMD(NYSE: AMD) server chips in the future (for related coverage on that, check out fellow Fool Bill Mann's piece AMD: When the Levee Breaks).

Dell's third quarter is yet another demonstration of why the company is the class of the industry. And if the third quarter wasn't bad, the fourth quarter doesn't look any worse. Dell expects fourth-quarter shipments to climb 20% year over year, driving revenue growth of 17% to $13.5 billion and boosting earnings per share by 24% to $0.36 per share.

For more on Dell, check out the Dell discussion board, or click on:

Fool contributor Jeff Hwang owns none of the companies mentioned above.

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Pixar "Stuns" Wall Street


Rick Aristotle Munarriz (TMF Edible)

What is real? You may find yourself today going over headlines that claim computer animation studio Pixar(Nasdaq: PIXR) trounced its third-quarter profit targets. Can you really take them seriously?

Let's go over the past few quarters to show you what I mean. See if you can spot the trend in how Pixar's bottom line pans out relative to what Wall Street's number crunchers expect.

Quarter EPS Estimate Eventual EPS % Difference
Q1 2003 $0.11 $0.15 +36%
Q2 2003 $0.22 $0.34 +55%
Q3 2003 $0.13 $0.23 +77%
Q4 2003 $1.26 $1.44 +14%
Q1 2004 $0.39 $0.46 +18%
Q2 2004 $0.37 $0.63 +70%

So with the market's allegedly brightest minds hovering around the $0.24-a-share mark for Pixar's third-quarter earnings -- and the company producing profits of $0.38 -- shouldn't we be seeing some edgier headlines? You know, stuff like:

  • Wall Street Blows It Again
  • Mr. Market's a Mongrel
  • Wake Up, Analysts!

Naturally this stellar quarter came to a close even before The Incredibles handed Pixar its highest grossing opening weekend ever last week. You might want to wipe off that drool after going over the company's income statement and its awe-inspiring 50.4% in net profit margins. You might want to check your inspiration at the door when you begin to think about what the company will be capable of when it no longer has to split its profits with Disney(NYSE: DIS). However, instead of asking yourself why Motley Fool Stock Advisor stock recommendation Pixar is able to beat the proverbial Street so badly every quarter, ask yourself why the Street allows itself to get beaten so submissively. At least when rival Animal House fraternity pledges were saying, "Thank you sir, may I have another?," they had a reason for accepting the paddling. Why these analysts don the leather before the Pixar dominatrix enters the room every three months is baffling.

There are naturally concerns with any company, and Pixar can't escape that. Rival DreamWorks Animation(NYSE: DWA) is putting out a good product these days and its computer animation release schedule is ambitious. Will that, and active slates elsewhere, clutter the market? Pixar's next release is Cars, and the movie trailer is a hoot, but will the studio be able to make the film appealing to both young girls and young boys?

Those are some questions worth chewing on in the future, but today's question is directed toward the market prognosticators. When will you get it right?

Longtime Fool contributor Rick Munarriz owns all of the Pixar releases on DVD. Yes, he owns shares of Pixar too -- and Disney.

Discussion Board of the Day: Video & PC Games

Have you played Halo 2 yet? Which console do you think will gain market share over the holidays? Which one will fall behind? All this and more -- on the Video & PC Games discussion board. Only on

Tiffany's Pricey Elements


Bill Mann (TMF Otter)

You've seen that precious metal prices have skyrocketed over the last few years, right? Gold, for example, has risen from less than $260 an ounce in 2002 to more than $435 at yesterday's close. Certainly a rise in price of the "barbarous relic" is going to help gold miners and gold bugs, but who's it going to hurt?

Well, jewelers, for one, if they cannot pass their increased raw material costs on to customers. And judging from its most recent quarter, it's safe to say that Tiffany & Co.(NYSE: TIF), the world's leading luxury jeweler, could not. Let's leave the ever-so-easy quips about Tiffany losing its shine, sparkle, or whatever else to other media outlets. It comes down to this: Tiffany, like most companies that produce something, is dependent in no small degree on raw material costs. In this case, those raw materials happen to be diamonds, silver, gold, platinum, and other precious stones, all of which have risen dramatically in price. You can see this impact directly on Tiffany's inventory lines, which rose 26%, though much of that is due to increased cost, not poor inventory management.

For the most recent quarter, Tiffany turned in sales of $461 million, a rise of 7% over the same quarter a year ago. Unfortunately, that rise in sales was not matched by a rise in profits, as the bottom line declined 26% to $20.8 million, down from $28 million. Take a look at the amount the company lost in terms of gross margin, from 55.3% down to 53.4%, and you'll see exactly where much of that difference falls -- the company's gross receipts were down about $8 million.

Naturally, it's not that easy since we're talking $8 million pre-tax versus post-tax, but it does make the point: Tiffany was harmed by increasing raw material costs. But that wasn't all. Once again, weakness in Japan, the company's second-largest market, dragged results down worse than the company had anticipated. Frankly, the problems in Japan are a much larger long-term concern for shareholders than raw material prices. The former is a sign of a market where Tiffany has made enormous investments -- including three new stores in the past year -- that has become more and more competitive with luxury rivals staking claims. Also, Tiffany has had difficulty finding the right balance for pricing on its silver jewelry in Japan. Tiffany never discounts, and a price too low could actually harm the company's high-end image. In a market as brand-conscious as Japan, this is a critical consideration. At the same time, pricing that is too high, particularly for silver jewelry, has the effect of keeping it on the shelves.

This comes at a time when Tiffany is seeking to expand its store network, having opened six stores internationally thus far in 2004. Additionally, the company opened its first IRIDESSE format store this past month in Virginia's Tyson's Corner Galleria Mall, with a second opening today in Short Hills, New Jersey. Tiffany is somewhat insulated from raw material costs given its partial ownership of the Aber(Nasdaq: ABER) diamond mine at Diavik, but it still must buy most of its materials on the open market. Should gold and other metal prices continue to rise, this dependence could continue to affect the company's bottom line. Fortunately, though, Tiffany has that name brand to fall back on. People have shown a dramatic willingness to spend more for a Tiffany product than a comparable one elsewhere. But will they be willing to spend even more?

See also:

Bill Mann owns none of the companies mentioned in this story.

Quote of Note

"Nothing is at last sacred but the integrity of your own mind." -- Ralph Waldo Emerson

Charitable Donation Rules Are Changing


Roy Lewis (TMF Taxes)

For those of you considering donating a car, boat, or airplane to charity, you might want to consider doing just that before the end of the year. The new tax act has put into place much more strict provisions for the donation of these types of items when the claimed value exceeds $500, and those rules will go into effect in 2005.

Essentially the new law provides that the amount of the contribution deduction will be based on the use of the auto/boat/airplane (hereafter referred to as "property") by the charitable organization. If the charity uses the property in a significant fashion or makes a material improvement to the property, the donor (the person making the charitable contribution) is allowed to deduct the full fair market value of the property. But if the charity sells the asset without any significant intervening use or material improvement, the amount of the deduction will be limited to the gross sales price received by the charity. In effect, the actual fair market value of the property will be meaningless.

And it gets even more complicated. The new law also imposes very strict substantiation requirements for contributions of autos/boats/planes when the claimed value exceeds $500. Under the new rules taking effect in 2005, no deduction is allowed unless the donor receives a contemporaneous written acknowledgement from the charity. That document must include the name and taxpayer identification number of the donor and the vehicle identification number (or similar identification number) of the property. Additionally, if the charity sells the property without significant intervening use or material improvement of the property, the acknowledgement must:

  1. Certify that the asset was sold in an arm's-length transaction between unrelated parties;
  2. Certify the amount of the gross sales proceeds; and
  3. Include a warning that the donor's deduction is limited to the amount of the sales proceeds.

To be considered contemporaneous, the acknowledgement must be provided to the donor within 30 days of the date of the sale of the asset. In all other cases, the acknowledgement must be provided within 30 days of the contribution. Not only that, a charity can be charged a penalty if it knowingly furnishes a false or fraudulent acknowledgement or if it knowingly fails to furnish an acknowledgement that meets all of the new requirements. The penalty to the charity can be as much as $5,000.

Why all the new rules? Uncle Sam has been investigating the problem of overstating the value of autos/boats/planes and found that, yes, many taxpayers were inflating the value of the property that they were donating to charity. And, in many cases, the charity was a willing participant. Not only has the IRS imposed strict rules on the taxpayer but also they have made the reporting requirements for charities much more stringent. Overkill? Perhaps. But the bottom line is that if you're thinking about selling or donating that clunker sitting in your driveway, and your decision is to make the donation, you should likely get it done before the end of the year.

Roy Lewis lives in a trailer down by the river and is a motivational speaker when not dealing with tax issues, and he understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.

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