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Dell Inc. (DELL) and the Slump in PC Sales

Dell (DELL)So suddenly Dell Inc. (NASDAQ:DELL) isn’t looking like a win, is it?

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.

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