Dell Inc. (DELL): Time to Jump the PC Ship

There seems to be no immediate end in sight to the confusion around the buyout. Dell’s board has asked Carl Icahn to elaborate on his future vision for the company. Meanwhile, the company continues to suffer from a poor PC market, and in the first quarter of 2013 it has reported a 79% decline in profits.

Chinese Threat

The Chinese factor has been a decisive one in the PC industry. The Chinese OEM Lenovo has continued to prosper while the entire industry suffers. The company has built itself as a strong player in growing Asian markets, and particularly dominates the Chinese PC market. According to recent data by IDC, Lenovo is the only major PC manufacturer that has reported no decline in shipments. The company has emerged as the second largest OEM in the world, behind Hewlett-Packard Company (NYSE:HPQ), and has increased its market share to 15.3%. In doing so, Lenovo has removed Dell from the position of the second largest PC manufacturer in the world.

The rise of Lenovo is more evidence of the maturity of the PC industry and the tough road ahead for Dell Inc. (NASDAQ:DELL). The competition is shifting to cost efficiency as compared to innovation, and it is common knowledge that Chinese companies have a clear cost advantage due to cheaper inputs. There was speculation that International Business Machines Corp. (NYSE:IBM) will sell its low-end server division to Lenovo. The deal did not go through because the Chinese giant wanted to pay a lower sum for the segment.

Bottom-line

There seems to be no immediate end to the Dell Inc. (NASDAQ:DELL) takeover struggle. Meanwhile, the entire PC industry continues to slip with no immediate respite in sight. The failure of Windows 8 and the rise of Lenovo shows that the PC is no longer a premium product that can garner high margins. Michael Dell and Silver Lake’s bid seems to be in the better interest of the company, while Carl Icahn is just looking for a quick pay off. The declining profits, industry maturity and the buyout fiasco are responsible for making Dell an extremely unwise investment. Therefore, investors should stay away from the stock because if more players fallout from the takeover talks, the effect on its share price will be catastrophic.

The article Time to Jump the PC Ship originally appeared on Fool.com and is written by Red Chip.

Red Chip has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Red 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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