Report: Dell May be Going Private
January 14, 2013 8:34 PM
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Dell is in buyout talks with two private-equity firms
In an attempt to one day resurface as a true competitor in the computer technology industry, Dell is looking to go private.
An anonymous source recently told
that Dell is in buyout talks with two private-equity firms. The talks are in their earliest stages, so it's unclear if the buyout will go through.
Dell is likely looking to go private because it lost one-third of its value last year alone. PC sales are slow since PC demand can't keep up with that of mobile devices, and Dell has to hear about its financial failures from shareholders each quarter.
Dell's market value was $18.9 billion as of January 11. Its enterprise value is 4.4 times earnings before taxes, depreciation, amortization and interest for the last year, making it a lower valuation than every PC maker bigger than $1 billion with the exception of Hewlett-Packard.
Like some other PC makers, Dell was hoping that Windows 8's release would help boost sales of its hardware. However, Windows 8 device sales haven't been that impressive. While Microsoft happily announced
60 million Windows 8 licenses sold
just last week, that doesn't mean Windows 8 devices are flying off the shelves. Dell is still waiting on a sales boost for devices like the Dell XPS 12 convertible tablet.
third quarter in 2012
, Dell's profit fell 47 percent to 39 cents per share while revenue dropped 11 percent to $13.7 billion from a year previous (Wall Street expected $13.9 billion). Its net income fell from $893 million (49 cents per share) in Q3 2011 to $475 million (27 cents per share) in Q3 2012.
For the same quarter, Dell's PC shipments fell 8.3 percent from a year earlier.
Dell predicts fourth quarter revenue of $14 billion to $14.4 billion, which is a bit less than the $14.5 billion analysts were shooting for. In Q4 2011, revenue was $16 billion.
One good aspect is that Dell's shares increased 13 percent today after news of the possible buyout had spread.
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1/15/2013 1:43:39 PM
I think you misunderstand what's going on here.
There are downsides to being a public company. You're at the mercy of the mob. Investors generally want a quick return on investment and as a result they'll apply pressure to do things are bad for the company in the long run. For them, it's all about flipping a company. You have to answer to investors who are just looking to make a quick buck.
For example, have you ever wondered why so many publicly traded companies do things that give them a short term gain in exchange for a long term loss? You might think "why would they ever outsource production to China, sell off their factories, license their name for others to use (thereby diluting the brand) and then sell off pieces of the company until it's gone?" Because it's profitable to do in the short term and investors push them to do it.
Right now, you have all these companies falling for the cell phone/tablet craze. It will be short lived. Everyone is saying that tablets are the future of computing. A few years ago everyone was saying that netbooks were the future of computing, and a few years before that laptops were supposed to be the future of computing. There will always be a market for these devices but the average selling prices are falling quickly and the profit margins are getting slimmer. Remember, the craze isn't about customer demand, it's about corporate profit. There's a huge customer demand for toilet paper, also, it's just not a product that has a high profit margin.
Desktops were the future when they commanded a high profit margin. The profit margin dried up on them so they proclaimed laptops to be the future. The profit margin dried up on them so they proclaimed netbooks to be the future. The profit margin dried up on them so they proclaimed tablets to be the future. And now the profit is drying up on them too.
The truth is that computing is becoming more mature and the industry is running out of new frontiers. People don't need to replace their computers every few years anymore. Once all tablets are under $200 and have HD displays and fast CPUs there won't be a need to upgrade them until they break. Companies are going to have to shrink a bit since consumers aren't going to be spending the money on computers that they used to.
"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation
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