Dell Inc. (DELL): An Undervalued Tech Giant

Windows 8 and software potentials

Going forward, Windows 8 has a good chance to make a significant impact in the tablet market. The tablet market is still growing and top vendor Apple does not license iOS. While Google does license Android, Windows 8 provides the big advantage of being backward-compatible to legacy Windows programs. Also, Windows 8 does not put the PC industry at risk because Windows 7 is a solid fall back OS. Finally, Windows 8’s touch friendly UI could spur upgrades to touchscreen PCs.

In the holiday quarter, Dell’s top PC rival, Hewlett-Packard Company (NYSE:HPQ), took advantage of Windows 8. HP only experienced a decline in shipments of 0.6%. IDC states, “An aggressive push for Windows 8 volume helped the vendor make gains in Asia/Pacific and its home turf in the U.S. HP struggled in EMEA but posted the first year-over-year growth in Asia/Pacific in four quarters. Total volume was nearly flat from a year ago, but better than the overall market.” While Windows 8 has received a mixed reaction, it has a lot of potential and Michael Dell is undervaluing that potential.

Finally, Dell is in the midst of a transition to being a more software-based company. Dell completed its acquisition of Quest Software for $2.4 billion near the end of year 2012 and it is too early to evaluate the impact of the acquisition. Software usually brings a higher margin than hardware and Dell has recently been making a lot of software acquisitions.

The bottom line

In summary, Michael Dell’s offer undervalues Dell relative to its past earnings and the company’s potential. Dell remains a top PC and server vendor. In addition, the company and the PC industry are in the early stages of major transitions. Windows 8 has the potential to spur upgrades to touchscreen PCs and make Windows a significant presence in tablets. Also, Dell’s software acquisitions could produce big profits for the company. Finally, the major problems in the global economy have likely been a major contributor to the struggles of the PC industry. Thus, the industry should show big improvements when the global economy recovers. Overall, Michael Dell’s offer is a bad deal for long-term Dell shareholders.

The article An Undervalued Tech Giant originally appeared on Fool.com and is written by Alvin Gonzales.

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