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Hewlett-Packard Company (HPQ), Dell Inc. (DELL): A Closer Look at Three Global PC Makers

Dell’s two biggest shareholders, South Eastern Asset Management and Carl Icahn, seem to be bullish about Dell at its current price. Both of them proposed the offer so that Dell Inc. (NASDAQ:DELL)’s current shareholders could have the right to continue being Dell’s shareholders. Moreover, shareholders could choose to receive $12 per share in cash or $12 in additional shares valued at $1.65 per share. With the assumption that 20% of total outstanding shares will not receive cash, the remaining stub earnings might be ranging from $0.50 to $0.89 pre-tax per share. A value of $1.98 to $5.35 would be realized with a multiple of 4 to 6.

A good play on Chinese PC maker

Lenovo, the Chinese PC maker, has also spent very little for its R&D. In the past twelve months, Lenovo generated $32.55 billion in sales. However, it only spent $153 million in R&D activities, accounting for only 1.68% of the total sales. It has a much stronger balance sheet than the other two companies I’ve mentioned, though. It had nearly $2.4 billion in equity in September 2012, nearly $4 billion in cash and more than $3 billion in intangible assets.

Lenovo seems to have the advantage because it is also the leader in the most populated country in the world, China. Dated back to 2005, Lenovo acquired its personal computer business from International Business Machines Corp. (NYSE:IBM) for around $1.25 billion. Liu Chuanzhi, the former chairman of Lenovo commented on the acquisition

We benefited in three ways from the IBM acquisition. We got the ThinkPad brand, IBM’s more advanced PC manufacturing technology and the company’s international resources, such as its global sales channels and operation teams. These three elements have shored up our sales revenue in the past several years.

Recently, Lenovo also entered talks with International Business Machines Corp. (NYSE:IBM) for IBM’s x86 server business. The talk has been placed on hold for now, however, due to the disagreement on pricing. According to the Wall Street Journal, Lenovo offered less than $2.5 billion for x86 server business which had generated $4.9 billion in sales in 2012.

My Foolish take

With the fast-deteriorating global PC environment, I would not consider all of those three giant PC makers to be in my long-term portfolio. Among the three, I like Dell Inc. (NASDAQ:DELL) the most and consider it a speculative play on the buyout transaction. Hewlett-Packard Company (NYSE:HPQ), with the largest amount of goodwill and intangible asset on the balance sheet, is quite vulnerable to the future write-down which could negatively impact on its stock price.

The article A Closer Look at Three Global PC Makers originally appeared on Fool.com and is written by Anh HOANG.

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