After mulling it over for about a month, asset management company The Blackstone Group L.P. (NYSE:BX) has decided to pass on taking the world’s third largest PC maker, Dell Inc. (NASDAQ:DELL), private.
PC sputtering
Most analysts agree. The Dell Inc. (NASDAQ:DELL) saga is rapidly turning into a referendum on the state of the PC industry, and what a sad state it really is.
Research firm IDC recently reported that PC shipments had dropped 14% year-over-year during the first quarter of 2013, the worst showing in the last 20 years. It doesn’t see any improvement for the rest of this year at least.
Dell Inc. (NASDAQ:DELL)’s fortunes have been floundering along with that of the overall PC market. Revenue has dropped 7% and EPS is off 20% over the last two years. The stock price has decreased 15%. A company with these attributes may not look particularly attractive as a takeover target unless it could be bought at a fire-sale price.
The world’s number one PC supplier, Hewlett-Packard Company (NYSE:HPQ), is also suffering, in part due to the softening of the market and also because of several recent management missteps. The company has had four CEO’s over the last two and a half years. The musical chairs in the executive office has probably had an effect. Current CEO Meg Whitman appears to at least have stabilized things somewhat.
The end result has been that both the company’s top and bottom lines have crumbled over the last two years, with revenue down 7% and EPS off by 260%. The stock has lost half its value, even after a little bit of a comeback over the last few weeks.
Unless the PC industry reverses its downward spiral quickly and Ms. Whitman can continue to improve things at the top, don’t expect Hewlett-Packard Company (NYSE:HPQ) to get better soon.
And Dell Inc. (NASDAQ:DELL) probably won’t right itself either, unless it gets out of the PC business, improves its other operations, and/or gets a cash infusion or some sort of a spark from privatization.
International Business Machines Corp. (NYSE:IBM) is a company that got out of the PC business many years ago and reinvented itself. It became successful in such endeavors as business to business services and specialized software applications. IBM was at one time the world’s largest suppler of PC’s, and in fact, in the early days, most computers intended for individuals were known as “IBM-compatible PC’s”.
The company just reported less than stellar financial results, with earnings below analyst estimates for the first time in eight years. Management blamed most of the problems on its sales force not being able to close enough deals during the quarter.
In the past, the company has been able to overcome revenue and earnings shortfalls, and returned value to shareholders by repurchasing its own stock, reducing share count by a third, and increasing its dividend payouts.
International Business Machines Corp. (NYSE:IBM) probably can’t get out of the current rut by financial engineering alone. It may need to address the flaws in their sales process.
Dell deal
Blackstone’s bid was in competition with several others, including a team that includes company founder Michael Dell.
Another player is the iconic investor Carl Icahn, who would like to add Dell to his list of conquests. He may be the right one for the job of improving things at Dell based upon his track record with other companies.
The Apple Inc. (NASDAQ:AAPL) effect
The world’s second most valuable company, Apple Inc. (NASDAQ:AAPL), wasn’t immune to the drop-off in PC shipments. According to IDC estimates, the company sold 7.5% fewer Macs in the January to March period, but still held onto thirr place in the U.S. market.
Apple Inc. (NASDAQ:AAPL) is seeing its market share for iPhones and iPads being eroded and its once lofty margins are declining. The turmoil has caused a 47 % drop in the stock price since the latest model of the iPhone was released last September.
One would have thought that the trouble in the PC market would allow a company like Apple to excel because of its previously dominant position in mobile computing, especially in the tablet industry which the company helped grow exponentially after the introduction of the iPad in 2010.
That hasn’t happened as competitors such as Samsung have made inroads into the smartphone business. The latest Samsung device, the Galaxy S4 (that was designed to cut into Apple’s lead in the high-end of the market), is being rolled out this month.
Apple is fighting back with the planned release of a lower-priced iPhone and the next generation of the original iPhone later this year which will address both half’s of the market.
Apple just posted its fiscal second quarter results. It beat analyst estimates on both earnings and revenue. Also, the company indicated it will return more of its cash pile to shareholders, announcing a dividend increase and more stock buybacks. Maybe things are finally turning the corner in Cupertino.
Conclusion
It remains to be seen who will be the “winner” in the bid to take Dell private.
Will Dell be forced out of the PC business and have to diversify like IBM did? If Carl Icahn takes over it is a strong possibility. If Michael Dell comes out on top it may be business as usual and things will continue to spiral downward.
Whoever has the best insight into those questions might benefit by making the right investments.
The article Why Blackstone Said No to Dell originally appeared on Fool.com and is written by Mark Morelli.
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