I think it's time for Dell
Last night's fourth-quarter report tells you all you need to know: Dell's consumer products division reported strong sales of $3.5 billion but at an operating margin of 0.2%. The holiday quarter tends to bring in an avalanche of consumer sales while also lowering margins, because without generous promotional pricing, Dell's prospective customers would be further enticed to get a system from Lenovo, Hewlett-Packard
CFO Brian Gladden took pains to "re-emphasize Dell's strategic commitment to the consumer business," because Dell runs at a negative-36-day cash conversion cycle and likes to put those passing cash flows to use. But I'm not buying that argument. To a penniless pauper, that cash-flow management focus makes sense, but Dell has more than $11 billion in the bank and is not in any danger of running out of working capital. Total sales in the fourth quarter stopped at $14.9 billion, 11% above the year-ago period, and non-GAAP earnings came in at $0.28 per share. Servers, storage systems, and support services can clearly support Dell just fine without the consumer segment.
I hear that Acer is interested in growing market share, and Samsung could use a retail foothold in Dell's core North American market, for example. Dell's cost structure is about as lean as it will ever get, but an operator with larger scale or in-house component manufacturing like Samsung might be able to squeeze more blood from this stone than Dell can. Dell claims the consumer business gives it scale that helps out its other business units, but I’m starting to question whether these benefits are worth the headache.
I think Dell is doing its shareholders a disservice by hanging on to this business unit. Would you be more likely to buy Dell stock if the company refocused on business-class servers and services? For me, that's a no-brainer. Discuss in the comment box below.