Dell Reaches End Of The Line

Dell , the world ' s third-largest supplier of personal computers (PCs) and related equipment, is reported to have entered into buyout discussions with at least two private equity groups . Bloomberg notes talks are still at the preliminary stages and may not necessarily lead to a takeover deal. Nevertheless, given the pressures on Dell ' s core consumer PC business by fast-growing, low-cost Asian competitors , alongside the trend for consumers to choose tablet computers over notebooks, BMI would not be surprised if a deal were struck soon.

Like its counterpart Hewlett-Packard , Dell has experienced rapidly falling unit sales of PCs in the consumer and enterprise segments, al though it is the consumer segment that has been hit hardest as cheaper products have been flooding the market worldwide via China-based Lenovo and Taiwan-based Acer and ASUS . These newcomers have also been bringing the fight closer to Dell and HP ' s core markets as they grow their distribution chains, acquire existing smaller players in Europe and the Americas , and develop complementary mobility products such as smartphones and tablets. Dell ' s foray into the smartphone and tablet markets was short-lived and investors were quick to punish the company amid concerns that its long-term growth strategy was muddled and far from convincing.

Losing Traction Among Consumers
Global PC Market Share, Q412

In the past, Dell has itself raised the notion of going private or at least spinning off the PC business to protect it from investors and market analysts pushing for change . At the same time, the company has been switching its focus to the more lucrative enterprise market and to increase its standing as a provider of advanced computing and networking solutions, including cloud computing. The company has made a series of high-profile acquisitions to further this objective.

BMI believes that spinning off the low-margin PC business and shedding non-core and other legacy product lines would ensure that Dell remains a powerful force in the global computing industry. Such a move would allow it to focus more on software and applications as services and products, which are increasingly in demand and potentially offer better returns on investment. The company has considered a return to the tablet market . However, BMI believes it would struggle to capture a meaningful share of the addressable market in light of Apple ' s dominance and the rise of zero-margin Asian-manufactured devices marketed by companies such as Amazon and Google , keen to use them as a means of drawing customers into their software-based services and platforms.

This article is tagged to:
Sector: Consumer Electronics
Geography: China, Global, China, Taiwan, Global, Global, Global

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