The worldwide server market has experienced a decline of 7.7% to $10.9 billion in the first quarter of this year. According to IDC, server unit shipments came in at around 1.9 million units, 3.9% lower than the server unit shipments in the same period last year. According to Matt Eastwood, Group VP and GM, Enterprise Platforms at IDC, the global decline in server sales was due to “ongoing server consolidation, technology transitions and challenging macroeconomic conditions across the globe.”
Dell Inc. (NASDAQ:DELL) and Cisco Systems, Inc. (NASDAQ:CSCO) are winners in the server market
Both Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ), the two largest global PC makers, have been suffering from the sharp decline in PC global business. However, for Dell, its servers and networking segments have been growing quite well. In the past three years, Dell has managed to grow its servers and networking sales from $7.6 billion to $9.3 billion. Hewlett-Packard has not been performing as well as Dell Inc. (NASDAQ:DELL) in the server business. In 2012, its Industry Standard Servers business came in at $12.5 billion, equal to the 2010 revenue. In 2012, Cisco Systems, Inc. (NASDAQ:CSCO) generated most of its revenue, $14.5 billion, from switching business. The Data Center came in at only $1.3 billion in 2012, but it was Cisco’s fastest growing product/services segment. In the past three years, the Data Center has grown sales significantly, from only $196 million in 2010 to nearly $1.3 billion in 2012.
Dell is in the buyout war
Dell Inc. (NASDAQ:DELL) has been in the midst of the buyout war for a while, between founder Michael Dell/Silver Lake and Carl Icahn/Southeastern Asset Management. Michael Dell/Silver Lake gave an offer of $13.65 per share in cash for the company while Carl Icahn/Southeastern Asset Management proposed a “leveraged recapitalization” plan for the option to either receive $12 per share in cash or $12 in additional shares valued at around $1.65 per share. However, Dell’s board has rejected Icahn’s offer. On the other hand, Carl Icahn and Southeastern Asset Management are choosing potential candidates for the CEO seat if they are successful in the buyout war. According to Reuters, the potential candidates could be Cisco Systems, Inc. (NASDAQ:CSCO)’s director Michael Capellas, Oracle’s President Mark Hurd and Hewlett-Packard’s PC chief, Todd Bradley.
Hewlett-Packard with negative tangible book value
Hewlett-Packard has been in the process of restructuring itself after a bad acquisition. The Autonomy acquisition has wiped out as much as $8.8 billion of the company’s equity within just around two years. What makes me worry about Hewlett-Packard is the fact that even after its huge $8.8 write-down, Hewlett-Packard still has as much as $35 billion in goodwill and intangible assets, which are very vulnerable for further write-down in the future. With only $23.5 billion in equity, Hewlett-Packard had a negative tangible book value of $(11.5) billion.
Cisco expands into energy IT management business
Cisco Systems, Inc. (NASDAQ:CSCO) has kept expanding its business via acquisitions. Recently, it acquired JouleX, one of the leading companies in enterprise IT energy management for network-attached and data center assets. JouleX could be a good support for Cisco’s services portfolio with its network capabilities to control energy usage across global IT systems. Faiyaz Shahpurwala, Cisco’s Senior VP, Industry Solutions said, “JouleX’s technology will strengthen Cisco Services’ Smart Offerings and complements our evolving services strategy. It extends our ‘Internet of Things’ capabilities and is a good alignment to Cisco EnergyWise.” Indeed, with the movement into energy IT management, Cisco would keep delivering more unique and great solutions to keep enterprises running more efficiently.
My Foolish take
Among the three, I like Cisco the most with its global leading positions in IT solutions for enterprise customers. Dell could be an opportunistic play on the recent buyout war, which could lead to short-term volatility in its share price. Hewlett-Packard could be a play on its turnaround, however, with the high goodwill and intangible assets on the balance sheet, I am not excited about Hewlett-Packard now.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems.
The article Dell & Cisco Are Growing in the Declining Global Server Market originally appeared on Fool.com and is written by Anh HOANG.
Anh 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.
