Dell's Wounds Are Getting Deeper

| About: Dell Inc. (DELL)


The declining trend in PC sales has affected the industry greatly so far. According to a recent IDC research report, PC shipments have dropped 14 percent in the last quarter, faster than the projected 7.7 percent drop, due to decreasing demand for PCs in every region of the world. IDC mentioned that the decline comes as consumers favor smartphones and tablets over PCs to access the internet and watch movies. DELL, the world's third-largest maker of PCs, posted a 13.55 percent decline in its PC sales during the fiscal fourth quarter ending March 2013.

Buyout Deal:

Dell Inc. (NASDAQ:DELL) has become hot news in the stock market since it first announced a leveraged buyout deal on February 5, 2013 that would delist its shares from the stock market and take it private. Michael Dell and Silver Lake Partners' bid to buy the company at a share price of $13.65 per share would be the highest leveraged buyout deal-$24.4 billion-since the 2007 financial crisis, if completed. But Blackstone Group and investor Carl Icahn opposed that deal, saying it undervalued the company, and proposed a counter offer. Blackstone offered to pay $14.25 per share for 100 percent of DELL's shares. On the other hand, Icahn offered $15 per share for 58 percent of the stakes.

Blackstone withdraws bid and Icahn on hold:

Dell is the recent victim of troubling trends in the PC industry. According to recent news, Blackstone Group withdrew its $25 billion takeover bid for DELL, citing the instability of the PC industry. In a letter to DELL's shareholders, Blackstone also pointed to the "rapid eroding financial profile of Dell". Blackstone also noted in the letter that DELL lowered its operating income forecast by 19 percent for the year 2013, to $3 billion from $3.7 billion. And that $3.7 billion was lowered from $5.6 billion, which Dell had circulated in July 2012. Icahn has also put his bid offer on hold, planning to wait and see the shareholders' decision. The Blackstone withdrawal and Icahn's backing away from the deal leaves DELL with only the Michael Dell bid offer, which made shareholders unhappy.

Other issues:

In addition to its deteriorating Desktop PC business division, DELL's other business divisions are also not performing well. According to its latest financial report, most of the business units posted losses compared to a year ago. Its Mobility business unit posted a loss of 20 percent in the fiscal year 2013, compared to a year ago. Its Storage division dropped 13 percent, and the Software & Peripherals division decreased 9 percent from the previous year. The decline in server vendor shipments, which is an important part of the business, is also an alarming signal for DELL. According to a Gartner research report, DELL's server vendor shipment decreased 7 percent from 573,125 units to 532,890 units in the fourth quarter of 2012. The reason behind the drop in server shipments is due to increasing demand for cloud computing-storage of data on the internet that can be accessed from anywhere with the help of software and computing.


DELL is facing a tough time due to its declining revenues, market share and pending decision on its buyout. The recent back out of Blackstone will put pressure on its stock, because (as mentioned earlier) after the withdrawal DELL is left with only the Michael Dell bid, which is not accepted by the shareholders. And many analysts have stated that the PC problem is just at the beginning of its fall, Enterprise server will hit in the near future. I believe that the uncertainty in buyout terms will lead DELL's stock to further decrease. I recommend selling this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.