Dell buyout highlights PC sector woes: analysts
WASHINGTON (AFP) – Dell’s plan to take the computer giant private offers an opportunity to return to its start-up roots, but won’t solve the fundamental problems facing the company and the PC sector, analysts say.
The Texas-based tech giant on Tuesday unveiled a $24.4 billion buyout deal giving founder Michael Dell a chance to reshape the former number one PC maker away from the spotlight of Wall Street.
Roger Kay, analyst at Endpoint Technologies, said Dell’s plan underscores the deep problems of an industry roiled by a rapid shift to mobile devices like tablets and smartphones, and away from traditional PCs.
“It’s an illustration of how tough the PC business is, that Dell had to take this extreme step,” Kay said.
Kay said that without the pressure of meeting quarterly financial targets, Dell can focus on more profitable PC segments as it tries to reinvent itself as a services and software company.
“Michael has been trying to turn Dell into a supplier of enterprise solutions for a long time,” said Kay. “He has pleaded with Wall Street to give him time.”
Kay told AFP that going private would make a transition easier by avoiding the spotlight of “ugly results” which could come from scaling back the PC business.
“The commodity PC business has been suffering,” Kay said.
“Dell may probably keep the higher margin consumer lines but maybe look at the rest of the portfolio.”
Shaw Wu, analyst with Sterne Agee, said Dell has a difficult task ahead.
“Despite the company’s strong efforts to transform itself… we estimate that about 70 per cent of its business is tied to PCs,” Wu said in a note to clients.
“On the positive, we believe going private takes the company out of the quarter-to-quarter grind of being a publicly traded company. But on the negative, not having publicly traded stock could make it more difficult to make larger, transformative acquisitions.”