In its most recent earnings report, Dell Inc. (NASDAQ:DELL) posted a 79% decline in earnings, as rising tablet and smartphone demand caused traditional PC sales to slump. Even as the company’s sales dwindle, its management is distracted by a major takeover fiasco, leaving Dell’s future as a viable investment deeply in doubt.
Industry Restructuring
Whenever any industry starts declining, investors usually witness considerable restructuring activity, so it’s not surprising to see abundant merger-and-acquisition news coming from the PC industry.
Lenovo is trying to buy up International Business Machines Corp. (NYSE:IBM)‘s server segment, while Hewlett-Packard Company (NYSE:HPQ) has made a number of misguided acquisitions. However, the biggest news in the market has been Dell Inc. (NASDAQ:DELL)’s takeover fiasco. The struggle to control Dell’s future continues, with no immediate end in sight. This uncertainty, combined with a declining PC market, makes Dell a poor investment and supports the argument that investors should sell the stock.
Industry Revival
Dell Inc. (NASDAQ:DELL) has no significant stake in the handheld industry, which is showing phenomenal growth. In the first quarter of 2013, the PC market fell by 13.9%, as opposed to the 7.7% drop the market expected. The entire PC industry was looking towards Microsoft Corporation (NASDAQ:MSFT)’s Windows 8 to spark a revival in sales. The industry expected that Windows 8 would start an upgrade cycle that would benefit both semiconductors and OEMs.
Windows 8 has thus far failed miserably due to a number of factors, including lack of hardware to support its features and lack of consumer interest in premium PC products. The consumers have been more interested in upgrading their handhelds than their PCs. According to recent reports, the software giant is already planning to launch Windows 8.1 later this year, probably in October. The industry is mostly concerned about the price tag on the newer version, as the price was a crucial factor behind Windows 8’s failure. Dell Inc. (NASDAQ:DELL) also launched various Windows 8 products, but as the quarterly revenue and profit decline shows, Windows 8 has failed to revive Dell Inc. (NASDAQ:DELL)’s sales.
Takeover Bid
In the last few months, Dell Inc. (NASDAQ:DELL) has been in the news constantly due to takeover speculation. It all started with Michael Dell and Silver Lake proposing to take the PC giant private in a $24.5 billion deal. The offer was met with a harsh reaction from a large chunk of the investing community. The offer price was perceived as underwhelming, which instigated new players to enter the buyout struggle. The Michael Dell and Silver Lake partnership has tried to improve the offer, but all attempts at negotiations have been met with a stone wall.
Last month a key player in the takeover fight, Blackstone, pulled out of the race. The company cited the weak PC market and declining sales as the primary reason behind their decision. The primary hindrance to Silver Lake and Dell’s offer is the activist investor Carl Icahn. He is pushing the Board to pay a onetime $12 dividend to shareholders, which will cost the company approximately $21 billion.
