Computer company Dell Technologies (DELL -1.04%) is laying off roughly 5% of its workforce, according to a recent SEC filing citing the weakening personal computer market as the key cause. It's not a stretch to presume rival computer companies like Lenovo (LNVGY -1.60%), Apple (AAPL -0.57%), and HP (HPQ -0.25%) are running into the same headwind.
What's a bit more difficult to see without digging deeper is the true intensity of Dell's struggle compared to its competition. It was the worst of the worst in terms of declining Q4 delivery numbers, with no end to the weakness on the horizon. And there's a possible reason -- or two -- for Dell's pronounced trouble that investors need to understand.
First things first.
Falling fast
Dell didn't divulge exact numbers in its filing, but technology consulting and market research outfit IDC does regularly update its estimates. It reckons global PC shipments (all brands) slipped 28.1% year over year during the fourth quarter of 2022, led by Dell's 37.2% dip. The company's deliveries have been declining rather sharply from their Q4-2021 peak, in fact.
Data source: IDC. Chart by author.
There's some important context worth adding to this chart: While Dell may have gotten a relatively slow start plugging into the demand created by the COVID-19 pandemic, it finished strong. Specifically, Dell's PC deliveries grew through the end of 2021, whereas competitors like Lenovo and HP saw their demand climax in 2020. Dell is facing notably tougher comparisons than its rivals are right now.
Nevertheless, something's clearly more wrong with Dell than with other PC names at this time.
Don't look for relief anytime soon, either. IDC adds that personal computer shipments are apt to tumble another 5.6% from 2022's relatively low levels in 2023. A measurable rebound now isn't expected until 2024, and even then IDC expects a shallow recovery.
The kicker: IDC doesn't anticipate higher selling prices offsetting shrinking PC demand in the meantime.
Not like the others (and that's a problem)
With nothing more than a passing glance, it's just another computer company. Take a closer look at the market, though. You'll see two stark differences between Dell and its rivals that may be causing much of its comparatively terrible performance.
The first of these differences is that Dell doesn't have much of a presence among traditional retailers like Best Buy and Walmart. That's a market it's largely ceded to other brands.
This is mostly intentional.
See, Dell focuses less on consumers and more on institutional customers likely to buy custom builds directly from the brand itself. About 40% of the third quarter's business was infrastructure like servers, while commercial computer revenue made up a similar proportion of its top line for the same quarter. Although this strategy cuts out middlemen that would otherwise cut into profits, it also leaves the brand out of an important sales venue when corporate business dries up...as it did in the final quarter of last year.
Data source: Thomson Reuters. Chart by author. Revenue figures are in millions of dollars.
The second reason Dell may struggle even more than other PC makers set to founder in 2023 is pricing. Whereas HP appeals to buyers on a budget and Apple's Macs enjoy cult-like devotion, Dell's above-average pricing makes its wares tougher to sell in a poor economic environment; that's true even for corporate customers.
No one denies a Dell PC's value, to be clear -- you get what you pay for! But high quality isn't always readily affordable. And this year, with the risk of recession still upon us, most would-be buyers are a little more cost-conscious than they'd normally be. To this end, the analyst community is calling for sales as well as profit declines in the immediate future.
Take the hint
Bottom line? This isn't a complicated, nuanced call. Dell Technologies is already on the defensive moving into what will be a tough year...much tougher than for its peers and rivals.
With the stock priced at less than 7 times next year's projected per-share profits, there's a valuation-based upside argument. In light of the company's current fiscal trajectory, however, there's little on the horizon that will activate a value-driven rally. Steer clear until the company can at least catch a PC tailwind.
