Carl Icahn can't seem to stay out of the headlines. The one-time Netflix agitator and mortal enemy of fund manager Bill Ackman is now knee-deep in what has become a low-grade bidding war for Dell (NASDAQ: DELL ) .
I'm mystified, though, as to why Icahn or anyone else would want a piece of the PC maker. Dell is missing out on the greatest growth opportunity we've seen in more than a decade.
Some won't agree with that take, especially those who say that tablets are, in effect, PCs. They're the just the new "form factor" -- what the computer has morphed to be, these cheerleaders say, arguing that an uptick in tablet sales favors Microsoft (NASDAQ: MSFT ) and Intel (NASDAQ: INTC ) at least as much as Apple and Google (NASDAQ: GOOGL ) .
If the categories really were so indistinct, then Dell would have no reason to sell itself to the highest bidder. Just sit back and roll in the giant piles of cash built from sales of the XPS 10 tablet and the relatively new XPS 12 convertible, which earns good reviews from the likes of CNET and Engadget. These are the sorts of Windows 8 devices that will boost the whole PC sector, right?
Wrong. Manufacturers haven't seen a boost of any kind. Intel's first-quarter guidance came in below consensus due to weak PC demand. Microsoft reported good Q4 results in its Windows division, but on a comparative basis, Windows 8's launch quarter brought in about $1 billion less than Windows 7 did at the time of its introduction. Taiwanese manufacturer Acer recently said Chromebook sales are on the rise while characterizing Windows 8 as "still not successful."
Dell, too, is showing battle scars. The one-time PC king suffered an 11% decline in revenue and a 22% drop in adjusted earnings per share in Q4. Both figures nudged ahead of estimates, revealing just how pessimistic Wall Street's view is of this business.
Analysts have good reason to be wary. Q4's results continue a downward pattern that's been in place for years and that shows no signs of abating:
In its 10-K annual report, Dell cites the "mobility" business as one of its weakest. Sector revenue declined 20% on an 18% drop in units sold. Average selling prices also fell 2%.
"During Fiscal 2013, we experienced a difficult pricing environment for our client products. In particular, demand for our client products in emerging countries was affected as we saw a migration to lower-value offerings, where we are less competitive. Our results were also affected as customers shifted some of their demand to alternative computing devices, particularly in our Consumer segment," the report confesses. [Emphasis added.]
Translation: We aren't good at selling smartphones and tablets, which is a problem when you consider how important these devices have become:
Interestingly, this chart tells only part of the story. IDC also says tablet sales more than doubled last year in emerging markets, where Dell is weak. Smartphone sales rose 69% while overall device sales jumped 41.3% in these up-and-coming regions. Unlike Apple, Acer, Samsung, and many others, Dell isn't cashing in on any of the growth opportunity.
For Dell, time to hit "delete"
Valuation math notwithstanding -- and, yes, there is a decent case to make that Dell is worth more than it trades for today -- this isn't a turnaround story in the making, and it may never be. Dell's historic strengths may prevent it.
Meanwhile, tablets are becoming the computing form of choice, especially in the emerging markets. Private or public, from here on Dell's relevance is inextricably linked to its ability to compete for and win non-PC customers.
I'd love to see it happen. I just don't believe it will.
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