I know you did not miss it. Recently, Dell (DELL) released its Dell Data Protection Encryption product into the market. The solution, according to the company, will help a business to detect and block the malicious behavior that a traditional anti-malware solution could miss. Unfortunately, the release of the product is coinciding with Dell's trouble over a buyout by founder Michael Dell and his Silver Lake partners.
Consequently, Wall Street and enterprise customers were distracted from the product. Dell's shares did not show any improvement. The new product is obviously an attempt by Dell to make a transition to a company that offers a broad range of IT solutions for an enterprise. But will the solution matter in the long run? I think it is smart for the investors to make Dell a short-term investment for now.
Dell was once a leader in the IT sector. It was on an incredible journey in the last three decades and a major player in the personal computer sector. Its revenues skyrocketed. The company traded at almost $59 per share on March 22, 2008.
But the IT sector is a fast-moving one that needs a constant reinvention to maintain a sustained growth. Apple (AAPL) and Lenovo (OTCPK:LNVGY) understood this principle. Apple released the iPhone in 2007. Dell's growth slowed as the personal computer began to lose the market share to the tablets and the smartphone. As a direct result of its constant reinvention, Lenovo became the major player in the personal computer business. Dell was not able to keep up with the pace. The death knell began to toll. The ensuing events brought Dell to its knees.
Mr. Dell approached Dell's Board of Directors with an interest in taking the company private with a $24.4 billion leveraged buyout deal. A special committee was established to consider the strategic alternatives and the acquisition proposal. The shares of Dell fell from $12.34 to $11.68 in the week of the announcement.
May 9, 2013
Dell shareholders Carl Icahn and Southeastern Asset Management teamed up to propose an alternative offer to founder Michael Dell's proposal. They also suggested replacing Michael Dell and the other members of his board and management.
July 3, 2013
A special committee of Dell's shareholders encouraged Michael Dell to raise his buyout bid of $13.65 per share. Michael refused, citing the deteriorating outlook for the personal computer business. The shares of Dell fell more than 3% in the following days as the investors grew skeptical that Dell and his partners would raise their buyout bid.
The committee set up to evaluate Dell's options submitted its report. It stated that the company's investors could face a substantial downside risk if the shareholders rejected Michael Dell's buyout plan. As a result of the squabble over buyout or valuation, Dell has crashed from a record $59 per share in 2008 to a paltry $13.40 per share and been distracted from developing the products that will ensure a long-term growth.
In the continuation of Dell's transition, it released the Dell Data Protection Encryption product. Quite frankly, the announcement should reassure the investors. But it would have no more lasting effect than when Compaq released its last personal computer product.
Does anyone remember the Dell Mini 5? Some saw it as the product to reverse the advance of the tablets. Dell organized a marketing stunt to promote its sales. But it did not improve the fortunes of the company.
The Dell Protection Encryption
The IT industry is a harsh sector. It is difficult to turn around a failing personal computer manufacturer. The personal computer sector is losing its market share. And Dell has lost a lot of the ground. I thought a product like the new Dell Data Protection Encryption will revitalize the company. But I am no longer sure.
A product would have to be an industry pacesetter to improve the fortunes of Dell. But I am not certain the new product is. It is a great product, but it is not a game changer. It is another personal computer solution. While Dell is spending its time creating a chaotic situation, the likes of Apple, Hewlett-Packard (HPQ), and Lenovo are taking its share of the market. With an EPS of 1.06, compared with 1.22 for Lenovo and 41.90 for Apple; a gross margin of 19.52%, compared with 23.66% for Hewlett-Packard and 37.50% for Apple, Dell is falling behind its competitors. Its inability to address the rising challenge of its rivals has cost it a leadership position in the IT sector.
The Dell Data Protection Encryption is not a game changer. The smartphone and tablets have become so popular in the market that they are the choice products for many consumers. Besides, Dell's leadership crisis has worsened the situation. It is best to trade on Dell on the short term for now.