Dell Inc. (DELL) Buyout at $13.65 Not Guaranteed

Hewlett-Packard may be able to sustain its growth by offering tablet devices in emerging markets. The company currently markets the HP Slate 7, which runs on Android 4.1 Jelly Bean. The device is aimed at lower-end markets (which also means it runs on lower-end components), with prices starting at $139.

The problem with the low-end devices is the low gross margins offered by the devices. On the upside, macroeconomic indicators largely support the need to offer low-end devices. The Procter & Gamble Company (NYSE:PG) estimates that between 2010 and 2020 the middle class will increase by 1.4 billion (98% of this will come from emerging markets).

The extensive retail distribution in foreign markets paired with the extreme low-end Android tablet could result in substantial market share gains for Hewlett-Packard Company (NYSE:HPQ). The effects on profitability are debatable. But Meg Whitman believes that the company is on schedule when it comes to restructuring and will be working down non-labor costs in 2014 or 2015.

Analysts aren’t offering any long-term forecasts that are likely to reflect reality. So at best, our growth estimates would be driven by falling costs, paired with revenue growth in tablet devices, offset by PC shipment declines in 2013. In 2014 PC shipments should improve due to a product refresh, growth in tablets, and falling non-labor costs. Hewlett-Packard Company (NYSE:HPQ) doesn’t provide any long-run guidance. So my best guess is a modest year-over-year decline in net income in 2013, with significant surprises in 2014.

Conclusion

Of the opportunities presented in the computer space, Dell Inc. (NASDAQ:DELL) seems the most practical in terms of potential investment returns over the short-term. However, investors that are more focused on the long-term should also consider investing in Hewlett-Packard.

I think that Carl Icahn’s most recent proposal seems to have the most potential to maximize investment returns. However, in the event shareholders go with the buyout at $13.65, the stock currently trades at $13.14, so investors would not lose money in either scenario.

The article Dell Buyout at $13.65 Not Guaranteed originally appeared on Fool.com and is written by Alexander Cho.

Alexander Cho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.