Six Companies To Watch As Dell Goes Private

Chris Lau, Kapitall: Dell will return to its roots and become a private company again. Who stands to benefit?

Last week Dell (DELL) founder Michael Dell finally won approval to retake the PC giant he founded in 1984. The shift back to privatization does not completely remove Dell as a hardware provider, but gives the company a chance to focus on more profitable areas. An exit from PCs is possible, but unlikely.

Hewlett Packard

The loss of a publicly traded competitor can benefit a number of other industry players. When Hewlett Packard ( HPQ ) bought Compaq in 2001 for $25 billion, it made HP an even bigger technology provider of information technology. The combined company was set to boost total sales and operating income, but the acquisition forced HP to focus on PCs as competitors shifted focus to smartphones and tablets.

[Read more about HP and Dell here.]

The mere possibility that Dell could reduce its focus on the PC market could benefit HP. HP suffered from a decline in sales of PCs over the last few quarters, and the company has little proprietary technology. Dell might restructure its own PC division, which would lower the competition for HP.

Dell still plans to expand in emerging markets, focusing on the enterprise market, and build a presence in virtual computing. These areas could compete with HP, but the market for enterprise computing is growing quickly to support both HP and Dell.

HP shares stumbled recently, and the stock trades at a forward P/E of just 6:

Click on the interactive charts below to see data over time. Sourced from Zacks Investment Research.

Other competition

If Dell develops better Ultrabooks and netbooks, Intel ( INTC ) stands to benefit. Intel is developing 14 nanometer chips, codenamed Broadwell, which support 3D camera technology. The chip is set to be released in the second half of 2014.

Intel trades at a forward P/E of 12:

Dell was testing ARM Holdings ( ARMH )-based servers earlier this year. If Dell increases R&D in ARM-based solutions, then this chip maker’s lofty forward P/E of 54 would be justified:

Investors doubtful that Dell will succeed as a private company could invest in established players like VMWare ( VMW ). Since bottoming below $60 in July, shares closed around $88. VMWare makes virtualization solutions. The company recently started to roll out IaaS, or Infrastructure-as-a-Service. This gives customers the ability to run applications on external data centers.

IBM ( IBM ) shares dropped heavily in August, but the stock made back most of its losses. IBM is developing microservers that consume very little power. Its NeXtScale server runs on an Intel Xeon processor, hase as many as 12 cores, and will draw no more than 130 watts of power.

 

(Written by Chris Lau, a Kapitall writer. All data sourced from Zacks Investment Research) 

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