Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

Dell (NASDAQ:DELL) competes in the growing global notebook market with HP (NYSE:HPQ), Apple (NASDAQ:AAPL), Acer and Lenovo (OTCPK:LNVGY) through its popular Inspiron, Vostro, Studio and Latitude brands.

In recent years, Dell has lost notebook market share to rivals, primarily HP and Acer, due in part to competitive netbook pricing which appeals to budget-conscious consumers.

Although we expect a slight continued decrease in Dell’s notebook market share, a broader economic recovery could help Dell notebook sales as consumers and enterprises resume spending on more powerful notebooks rather than netbooks.

We estimate there can be as much as 17% upside to the $14 Trefis price estimate for Dell’s stock, if the company’s notebook market share returned to 2005 levels of 18% instead of declining to the 12% that we forecast.

Dell’s Notebook Market Share Has Declined Steadily

Dell’s notebook market share has declined from 18% in 2005 to 13% in 2009. Low priced netbooks have become more popular among consumers over the past year, aided in part by the recessionary environment. Acer, a leading manufacturer of netbooks, saw a significant rise in demand for its lower priced netbooks. Higher netbook sales helped Acer replace Dell at the #2 position among the global PC manufacturers in the last quarter of 2009.

Improving Economy Can Boost Dell Market Share

Though we forecast Dell’s notebook market share to decline slowly and reach 12% by the end of the Trefis forecast period, the following two trends, in an improved economic environment, can positively impact Dell’s market share.

1. Managed service offering with Dell notebook purchases from enterprises

Dell can bundle its managed service offering with notebooks to help clients reduce their total ownership cost.

2. Revival in demand for notebooks

Consumer demand for more powerful and more expensive notebooks may rebound as the economy recovers. An increase in overall notebook demand could favor Dell’s product line and help the company’s notebook market share.

17% Upside To Dell’s Stock If It Can Reverse Market Share Losses

If Dell is able to realize higher sales for its notebooks, thereby stopping its market share declines and gaining market share in the long run, this would result in significant upside to its stock price.

We estimate that there could be 17% upside to the $14 Trefis price estimate for Dell’s stock, if Dell is able to reach historical levels of 18% share by the end of Trefis forecast period.

You can modify the forecast above to see how Dell’s stock would be impacted if its notebook market share were to rise instead of decline as we forecast.

For additional analysis and forecasts, here is our complete model for Dell’s stock.

Disclosure: No positions.

Source: Rebound in Notebook Market Share Could Mean 17% Upside for Dell