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Dell Inc. (DELL), one of the leading PC manufacturers, will end its 25-year history of running as a public company by the end of its third quarter ending October 31, 2013. The company has launched a series of products in the tablet segment to attempt to offset the negative impact of the declining PC market. Dell has outlined its future initiatives, which are aimed at transforming the company from a PC centric business model, to a solutions-oriented entity.

Bold step towards tablet segment

In a bid to enhance its presence in the tablet segment, Dell has launched a series of tablets and hybrid convertibles based on Windows 8.1 and Android operating systems. The new products include Venue 8 Pro and Venue 11 Pro based on Windows 8.1, while Venue 7 and Venue 8 are compatible with Android OS. The Venue 8 Pro is one of the smallest tablets with Windows 8.1, weighing just 400 grams and measuring 8.9mm thick. Venue 11 Pro is a convertible tablet that provides 3 in 1 experience of tablet, laptop, and desktop. Dell has used Intel processor in all these tablets, thus abandoning its previous ARM based processor. Venue 7 will be priced at $149.99, which makes it as one of the lowest priced tablets in the market, while the Venue 8 will cost $179.99.

The company is currently facing headwinds from the decline in the PC market, for the world market demand has been in a negative trend. As per IDC's third quarter report, worldwide PC shipments declined 7.6% year over year, thus marking the sixth straight quarter of declines. World's third biggest PC maker, Dell, received 63% of its total revenue in the second quarter of fiscal year 2014 from its end user computing division, which includes PC business. Dell's presence in the tablet segment is just beginning, and with tablet shipments expected to beat PC sales by 2015, the company has high growth potential in this segment. Not only Dell, but another major player in PC business, Hewlett-Packard (HPQ), also has limited presence in this segment. Being leaders in the PC segment, both Dell and HP have lost their fortunes to Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) in the tablet market. Therefore, with its new product launch, Dell has an opportunity to increase its market share, as there is plenty of growth potential in the tablet market. The biggest example of market growth can be seen from Lenovo, which has increased its market share in the tablet market from 1.3% in the second quarter of 2012, to 3.3% in the second quarter of 2013.

From PC to Enterprise focused organization

The slump in the PC market has resulted in Dell adopting a strategy to grow its enterprise solution business, which grew its revenue 9% year over year in the second quarter. After winning the key shareholder vote to make Dell private, Michael Dell listed five key strategic initiatives, which include enhancing the enterprise solution business. Going private, the company will have less regulatory hurdles and disclosures than a public company. This will allow for speedy execution of strategy for reviving the company's fortunes. The company has strong channel partners like Oracle (ORCL) for increasing its enterprise business.

Dell recently announced that it will expand its partnership with Oracle for integration of Oracle management software for Dell solution. Oracle uses Enterprise Manager 12c to manage its database, while Dell uses OpenManage to manage its hardware infrastructure. Earlier, Oracle database and apps installed on Dell hardware, or any other vendor, were managed by two consoles. Now, the integration of OpenManage and Enterprise Manager 12c will give users the benefit of using Dell's systems from single Oracle Enterprise Manager Console software. This will maximize performance, achieve operational effectiveness, and improve resource optimization. In addition to this, Dell also introduced an Active Infrastructure based on Oracle operating system, or Linux, and Oracle Virtual Machine. Active Infrastructure is a converged infrastructure used for combining the function of server, storage, networking, and software in one package. Therefore, Dell's infrastructure used in IT datacenter will feature Oracle software solution.

Partnership with Oracle will help Dell expand its enterprise business by gaining access to Oracle customers. This is an important step towards increasing its footprint in the enterprise solution market. Oracle will use Dell's expertise in x86 hardware systems for increasing its presence in cloud computing. This is a win-win situation for both; Dell will benefit from Oracle's strong client base, while Oracle will benefit from strong hardware capabilities for increasing its customer experience.

How the competitors stand?

Dell faces stiff competition from Hewlett-Packard and Lenovo in the PC market. Both the competitors are also feeling the effects of the declining PC market, with Hewlett-Packard taking the hardest hit and losing its market leadership position to Lenovo in the second quarter of 2013, as per IDC. HP currently has market share of 17.1%. Like Dell, it has diversified its offering in the IT industry, but PC business remains the biggest revenue contributor, with 28% share in the total revenue of the third quarter ending July 31, 2013.

Both Dell and HP have been losing market share to Lenovo, which has gradually increased its presence from growth in shipments to emerging markets. HP is restructuring under the leadership of its CEO Meg Whitman. A massive layoff program will cut 29,000 jobs by 2014. It laid off 22,700 workers as of July this year, and the remaining cuts are expected to complete by the set date. This program is expected to save $3.5 billion annually after completion.

So, which company is winning the race, HP or Dell?

Well, there is no clear cut answer to this as HP has a much more diversified product line than Dell. Both the companies are reviving their fortunes, but with a private tag, Dell will have much more freedom to achieve long-term growth with strategic resource allocation than its publicly listed counterpart. Despite HP having strong presence in enterprise segment, Dell has a stronger channel partner program than HP, which has helped it increase its presence in the enterprise business space.

Conclusion:

The closing of Dell's buyout program for making the company private is drawing near, and investors shouldn't expect much appreciation in the stock price as compared to Dell's offer of $13.88. The stock is currently trading at $13.85 with not much price movement due to low trade volume. The company is taking positive steps towards tablet market with its enterprise focused approach, and Dell is expected to reduce the negative impact of decline in the PC market. Furthermore, Dell is expected to improve its earnings next year. Its declining forward P/E of 12.35 for the fiscal year ending February 1, 2015 as compared to 12 months trailing P/E of 18.04 is an indication of future growth.

The private tag that Dell is betting on will be important for achieving the long-term objectives that Michael Dell announced recently, and with its strong partnership with Oracle, Dell can bet on giving tough competition to other players like HP in the enterprise market.

Source: Dell: Goodbye Investors, I Am Going Private

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Rohit Gupta, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.