The news of the Dell recall and the exploding batteries (thermal incidents Dell calls them? Sheesh!!) reminded me of the Intel floating point processor recall in 1994. I remember that I was working out at the club when the story hit. Intel was trading down sharply on the news, which described a minor problem that would affect only a small percentage of users. Intel's PR was not the best, since they were denying the problem instead of offering to fix it.
I got off of the ski machine and grabbed an envelope, calculating the entire cost of replacing the affected chips (at Intel's prices, not final sale prices). It represented about thirty cents/share of Intel, and not all people would require replacement. Most importantly, it was a one-time cost, not something affecting future earnings. I called in my order from the club, figuring that Intel would eventually come up with the right answer. It took a couple of days for the company to announce their recall plan, but it was a nice trade.
No such opportunity with Dell. Even with CNBC showing the Willie Nelson type guy with the burned-out pickup truck, the stock price is firm. Both Dell and the market are doing a better job than was the case in 1994.
CNBC interviewed some ol' guy this morning who lost his truck when the laptop caught fire. He also had "ammo in the glovebox." Said it all went off. Crazy.
Posted by: muckdog | August 15, 2006 at 07:26 PM