Check Out This Stock As Dell Goes Private

Chris Lau, Kapitall: As Dell (DELL) continues to toy with buyout plans from founder Michael Dell and investment firm Silver Lake, the landscape for the PC market at large – something investors should note ahead of any actual privatization of the company.

[Read more from Kapitall: 5 Stocks With Happy Employees After The Fast-Food Strike-Out]

If Dell is taken private, shareholders will get $13.75, a special dividend of $0.13 per share, and a $0.08 dividend per share in the third quarter. With Dell out of the public eye, investors would have access to one less direct link to the fortunes of the PC market.

The overall PC market is shrinking. IT research firm Gartner said that second quarter shipments  dropped by 10.9%.

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PC Makers

If Dell is no longer a publicly company, the firm can either improve the quality and design of its PC products, or reduce its focus to develop smartphones or tablets. Either way, the shift will give competitors like Hewlett Packard (HPQ) or Lenovo (OTC:LNVGY) a temporary boost in market share. While Dell experienced a 3.9% decline in PC shipments in the second quarter of 2013, Lenovo gained 1.7% in market share compared to the same period in the previous year. HP gained 1% in market share, although it too, experienced a 4.8% decline in growth.

Looking to the long term, if Dell makes a concerted effort to improve the quality of its lineup, such as the Dell XPS13 or Alienware products, then HP could face some real competition for its premium PC products. Dell could be free again to try new things. The PC giant had once been free to test Android Phablet computers and thin Latitude laptops that could be charged wirelessly, back in 2009. Dell could once again redefine “ultrabooks” and the paradox in offering a tablet and laptop as a single solution.

PC makers are all up in the one year period, with the exception of Apple, which is down around 30%:

Click on the image above to see prices over time. Price data sourced from Zacks Investment Research.

Chip Processors Unfazed

Meanwhile chip makers like Advanced Micro Devices (AMD) and Intel (INTC) are unlikely to face any serious declines in business as Dell is taken private. The continued efforts for all vendors to develop ultrabooks and laptops should provide moderate demand for PC chips.

Conclusion

If the deal goes through, Dell will eventually be free from reporting its results every quarter. Its impact on the PC market could be negligible for its competitors, but it could also be positive. A company similar to Dell in its growth strategy is HP. HP makes very little from PC sales, but is looking to grow its services, enterprise solutions, and consulting infrastructure business. HP is also trying to grow in providing big data solutions through its Autonomy acquisition. By contrast, Dell offers Cloudera. Since investing in Dell will no longer be an option, HP could be another way to gain exposure to both the enterprise computing and traditional PC space.

 

Written by Chris Lau, Kapitall contributor

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