Austin American-Statesman Plugged In column
Jan 12, 2013 (Austin American-Statesman - McClatchy-Tribune Information Services via COMTEX) --
January can be the time for grim reckonings in the investment world, and some analysts are taking a harder look at two personal computer industry stalwarts, Dell Inc. and Hewlett-Packard Co.
Stocks for both companies suffered in 2012 as the global PC industry was hit by weakening international sales in the face of rising competition from mobile devices. Dell's stock price dropped 29.6 percent during the year, while HP's price fell 45.2 percent.
As Bernstein Research analyst Toni Sacconaghi points out, HP and Dell had the fourth- and 10th-worst performing stocks in the S&P 500 last year. That is nothing to smile about.
HP at least had the excuse of a feckless board of directors that has created excessive turnover in the CEO's job in recent years.
But not Dell. Company founder Michael Dell has pointed toward reinventing his company for five years now. Round Rock-based Dell has made more than $12 billion worth of acquisitions over that time as it continues to strive to become a one-stop-shop for advanced information technology hardware, software and services.
But despite the solid game plan, it hasn't been enough. Slow growth in personal computer sales and tough pricing by Asian competitors Lenovo Group and AsusTek Computer has withered Dell's revenue and sales. Despite some bright spots, the company's revenue is expected to be down by more than $5 billion for the fiscal year that ends this month, while profits are expected to be down by nearly 20 percent.
Michael Dell might be getting impatient with the pace of his company's transformation. Several senior executives left the company last year, including Brad Anderson, president of Dell's enterprise business, who left in August, Steve Schuckenbrock, president of Dell Services, who left suddenly in December, and Darren Thomas, head of Dell's storage system business, who also left in December.
And last week word leaked out that Dave Johnson, the well-respected head of Dell's acquisition strategy, had left the company after three and a half years to take a job at the Blackstone Group investment firm.
Sacconaghi, in his latest report, looks at the potential value of Dell and HP if they were broken into logical parts.
He concludes that HP might be a candidate for a breakup in the next year or two unless new CEO Meg Whitman manages to pull off some sign of a rebound.
But Dell, the analyst said, is a much less likely to break up simply because so much of its business -- roughly 70 percent of its revenue and 60 percent of its profits -- remains tied to personal computers.
And things don't look great for a PC turnaround anytime real soon. Sterne Agee analyst Shaw Wu reported last week that he expects global PC sales will expand by less than 2 percent in 2013 after growing by less than 1 percent in 2012. Part of the reason, he said, is the expected expansion in sales of Apple Inc.'s iPad.
Consumers remain more infatuated with smartphones and tablet computers than with PCs for the time being, and analysts expect that trend will continue into the new year.
Meanwhile, Microsoft Corp.'s latest Windows 8 software -- rolled out in late October -- has shown little sign of pepping up PC sales.
Dell professes to be upbeat about its Windows 8 products, including new tablets, but analysts aren't so sure those products will be enough to turn the tide.
Dell remains the third-largest PC maker in the world, but its sales have dropped about 9 percent over the p ast 12 months as Lenovo has gotten aggressive.
But in the enterprise technology business, Dell is still a bit small.
Sacconaghi estimates that Dell's enterprise business is about $16.2 billion, which puts it well behind industry leaders IBM Corp, at $104.7 billion; Cisco Systems, at $46.7 billion; and Oracle Corp. at $37.3 billion.
But there are glimmers of hope at Dell.
Brian Marshall, with International Strategy & Investment Group, reports that Dell Wyse, the "thin client" maker acquired last year, is growing rapidly. A thin client is a smart terminal that relies on a central server to do the actual data processing.
Wyse's revenue has shot up from $400 million in 2011 to a $1 billion "run rate" in the third quarter of last year. The headcount of the Dell Wyse has more than doubled to 1,200 people since the acquisition as the company expands its product lines and sales.
The thin client market has expanded rapidly in the past few years as cost advantages for businesses have become more pronounced, Marshall wrote. The analyst expects Wyse to capture about half the worldwide market of more than 3 million units and to grow between 30 and 40 percent a year over the next few years.
Kirk Ladendorf covers the business side of technology for the American-Statesman.
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