Dell Inc. (DELL): One Short, One Buy From a Declining Industry

Dell

Dell Inc. (NASDAQ:DELL) is perhaps the worst affected company from the decline in shipments. Unlike other manufacturers, the company didn’t have any other source of revenues. Its PC shipments have been on a consistent decline during the last few quarters. However, during the second quarter of 2013, the company managed to stem the flow. The decline was only 3.9% due to some growth from U.S. and Japan. Unlike the EMEA and European region, these markets are more resistant to entry of price players like Lenovo.

The valuations of Dell Inc. (NASDAQ:DELL) are more susceptible to the outcome of its buyout struggle than any shipment figures. Michael Dell and Carl Icahn might have different visions for Dell, but both are struggling to gain control of this PC giant. On Thursday, shareholders were scheduled to vote on the $24.4 billion offer from Michael Dell, but the company postponed the vote to Wednesday. The Dell founder needs 42% to take Dell private, but there are indications that Carl Icahn already has support from 30% of voters.

The activist investor is still pushing Michael Dell to further increase its offer. If we take into account Dell’s sliding earnings and deteriorating PC markets, an increased offer seems highly unlikely. If Dell Inc. (NASDAQ:DELL) is not successful in getting the required support for his bid, shares could slide. Considering the fact that there is a limited upside at current levels and huge downside, Dell is not a smart investment choice.

Bottom line

The recently released Gartner data shows that PC shipments are still declining. Consumers are increasingly shifting towards tablets and avoiding ultra-books. Windows 8 has failed to make an impact; rather it has negatively affected PC shipments. The current hardware base doesn’t support Windows 8 as recent data indicates that only 10% of PCs shipped during 2Q2013 actually had touch capability.

The last hope of the PC industry lies with Intel’s new Haswell chips. The entire industry expects Haswell chips to be the key catalyst for PC shipments. Lenovo is currently the best investment option in PC OEMs due to its continued shipment growth in a declining industry.

If the Michael Dell loses the shareholder vote on Wednesday, Dell Inc. (NASDAQ:DELL) could see a considerable valuation decline. Therefore, with limited upside and huge downside, Dell is an excellent short target.

The article 1 Short, 1 Buy From a Declining Industry originally appeared on Fool.com and is written by Mohsin Saeed.

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

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