The decline of PC sales in general seems to have cooled off the passion that alternative asset management firm Blackstone had for the ailing technology firm. Citing a 14% drop in PC sales – though I just bought two for my kids – the firm pulled out of its tens of billions of dollars, non-binding offer to take over the company. It’s a blow for Dell Inc. (NASDAQ:DELL), as losing a bidder in a public way hurts the overall valuation of the company.
The firm’s stock showed it. Over a two-day period following the development, the stock dropped approximately 3.7% and didn’t show any signs of recovery. The stock had been bid up in anticipation of a takeover, growing from $8.86 in November to a high of $14.51 in March.
But without a big bidding war – whether to take it over or take it private – I think we can expect to see a decline in the already shaky shares. Even with a P/E of about 9.9 I’m doubtful there will be much demand for the company.
PC, wherefore art thou desktops?
The real question becomes – for Dell Inc. (NASDAQ:DELL) and others in the market – whether or not the decline in PC sales represents a true transformation in the way technology buyers are approaching the need for new machines. If there is a real tablet revolution underway – and I think there is – the need for big, bulky desktops is going to drop like a rock. Companies caught leaning the wrong way are in for one heck of a hard time in the short and medium-term if that happens.
It leaves some traditional PC manufacturers looking for ways to expand a shrinking market. Hewlett-Packard Company (NYSE:HPQ) – owner of the not-so-great and sudden title of “world’s largest PC maker” – is suddenly trying to find a way to make its desktops hot again.
Using a system developed by Leap Motion, Hewlett-Packard Company (NYSE:HPQ) is trying to build buzz around allowing users to control their machines with hand motions and gestures. It’s cute, but I don’t see it being a huge differentiator.
Hewlett-Packard Company (NYSE:HPQ) is hideously vulnerable to a collapse in the PC market. Already strongly committed to the sheer concept of the PC, the company is still trying to survive some very hard times. A year ago, the firm’s shares were at $24.71 before dropping to $11.71 last November.
Even some growth that saw shares climb to $23.84 is beginning to look like a false hope as in April the stock’s dropped 18.1% so far and no one knows where that bottoms going to be. The firm isn’t making money – last year’s operating margin was -9.2% – and one of its main products is suddenly not selling.
Who’s smiling?
There are a few firms well-positioned to do well out of the drop in PC sales. Apple Inc. (NASDAQ:AAPL) in particular, is ready to capitalize on the growth in tablet sales. Heck, there isn’t really a firm more iconic in the tablet industry than Apple Inc. (NASDAQ:AAPL) and its iPad devices. Combine those with the growth of smartphones and the need for locked-down PCs does begin to look weak.
Apple’s had it’s own problems lately, but I continue to believe that most of them are media-driven. Beating on Apple Inc. (NASDAQ:AAPL) is a fun thing to do for some talking heads because they want to be on top of predicting the fall of a giant.
But Apple is still a good buy with a net margin of approximately 26.7% for 2012 and a solid dividend of about 2.7%. The firm hasn’t deserved the share beating it’s received and I believe it’s worthy to have some now – while it’s discounted by the market – before people recover. With a P/E of 8.9, Apple is under-bought.
Another firm that seems to have been predicting the weakening of the PC market is Microsoft Corporation (NASDAQ:MSFT). With the release of the Microsoft Corporation (NASDAQ:MSFT) Surface tablet, the Redmond.-based company has been trying to position its tablet as a replacement for the PC. The on-board full-sized keyboard and installed MS-Office are both designed to allow workers to carry around their workstations instead of being tied to a desk.
Microsoft Corporation (NASDAQ:MSFT) has almost always made its big strides appealing to the large corporate buyer and the way it has positioned the Surface is no different. Now with an announcement that smaller, cheaper Surfaces will be available soon for the consumer market the firm is entering tablets in a big way.
As for its shares, Microsoft is an interesting story. It’s long been trendy to beat on Microsoft as a older, stodgier tech firm that doesn’t play by the traditionally fun tech rules. But honestly, that’s what makes it so attractive. It’s not as flashy as Apple, but it still makes money – a net margin last year of $23% and a Q1 2013 margin of 29.6% – and it pays a 3%+ dividend. Microsoft was, is, and continues to be a good buy for investors who want to be in the tech sector without the ulcers that some other companies can cause.
Moving Right Along
As yet, it’s unclear whether the PC slump is real or a short-term phenomenon. To make it short-term, PC makers are going to have to start providing some reason that a standalone – or even networked – PC with a hard drive is superior to a tablet or smartphone that’s always connected to a cloud-based data storage system. The combination or portability, data protection and lower prices are attractive to consumers. If some of these companies can’t figure that out, they’ll be on the long, slow slide downhill for several years.
The article Dell and the Slump in PC Sales originally appeared on Fool.com and is written by Nate Wooley.
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