Transforming with the Changing Times

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The worldwide PC market witnessed a decline of ~8.6% in the third quarter of 2012 for the first time in the decade. The table below shows the data of computer shipments by the top vendors according to the International Data Corporation (IDC). Have a look:

Company

PC Shipments for 3Q12 ('000s)

% Growth y/y

Market Share (3Q12)

Hewlett-Packard (NYSE: HPQ)

13946

-16.40%

15.90%

Lenovo Group

13824

10.20%

15.70%

Dell (NASDAQ: DELL)

9499

-14.00%

10.80%

Apple  (NASDAQ: AAPL)

2056 (US)

-7.00%

12.50%

 Source: IDC Worldwide Quarterly PC Tracker, Oct. 10, 2012

The decreasing shipment numbers from these top vendors was because of the joint impact of the growing popularity of Smartphones and Tablets and the economic depression which has been affecting the buyers’ sentiments.  The lack of innovations in PCs is also a contributing factor for the consumer shifting to devices other than the PCs.

Amid all these slowdown factors, the Chinese company Lenovo Group posted the highest growth of ~10.2% in its PC shipments among all the vendors. It was the only company among the top four that was able to report positive growth, as well as increase its market share to 15.7% from 13.1% in 3Q 2011. Lenovo adopted an aggressive pricing strategy to overtake HP in PC shipments and is now advancing into Smartphones, Tablets, and Smart TVs to broaden its product line.

On the other hand, once known as the leader in the PC market, Hewlett-Packard is now struggling to retain its position in the industry. Along with the slow demand of PC's and Printers, HP is facing some serious challenges in its management, with three different CEOs joining and then leaving in the last two years. HP generates ~37% of its revenue from Europe. However, the debt crisis in Europe and its highly controversial acquisition of Autonomy has affected its revenue really hard. As a result, HP saw the biggest ever downfall of ~16.4% in its shipments, which sent its stock price tumbling, losing ~50% of its value in the last year. Unfortunately, HP still has no clear strategy to pull-back its market share and I see no recent turnaround factors for the company. Such a situation will remain a key obstacle for the company's future growth. 

On the global level, Apple doesn't hold a place in the top six PC vendors. However, if we consider the US PC market the company is the third largest vendor, with a market share of 12.5%. But Apple also saw a decline of ~7% in its PC shipments, although the decline was offset by some of the amazing products in its portfolio such as the iPhone and iPad, which have seen exceptional success. To replicate the same success for PCs, Apple recently launched its redesigned iMac computers. This all-in-one computer has various advanced features such as a 27-inch screen size, faster processors, whisper-thin display for reduced reflection, etc. This device is a perfect combination of style and innovation to which the consumers are likely to respond positively. 

Coming over to Dell, the third largest PC vendor after HP and Lenovo was another victim of the sluggish global PC market. It recently posted its 3Q 2013 results with its revenue down by ~11% y/y to ~$13.7 billion and net income down by a huge ~47% y/y to ~$893 million. However, its Enterprise Solutions and Services segment saw an increase of ~3% y/y to ~$4.8 billion and the Server and Networking segment increased by ~11% y/y. With the weakening market of PC's, Dell has shifted its focus to be a complete IT solutions provider for the Enterprises. Let us have a look at some of the growth factors for Dell. 

Acquisition of Quest Software

In 2Q 2013, Dell acquired Quest Software for ~$2.4 billion, which is an IT management software provider offering a wide array of solutions  from the simplest to the most complex IT problems. This acquisition will provide Dell with an opportunity to expand its capabilities in Systems Management, Security, Data Protection, Cloud Integration and Workloads Management. Dell is expected to gain an additional 100,000 customers, 5,000 channel partners, and an enhanced software business of ~$1 billion via this acquisition.

Acquisition of Gale Technologies

Another acquisition for Dell was of Gale Technologies, which helps the organization with its Infrastructure Automation Software. With this acquisition Dell has come a step closer to its strategy of becoming an end-to-end IT solutions provider. Gale Technologies provides economical management tools for complex IT environments and it would be an add-on to Dell's Active Infrastructure Suite. The acquisition of Gale provides a more comprehensive approach to Dell for Cloud computing deployments and other Cloud related services to compete effectively with HP and IBM. 

Furthermore, to catch up with the fast growing BYOD trend, Dell launched 'PocketCloud Explore' for iPad and Surface and 'PocketCloud Web' for Browsers. With this well updated portfolio, Dell is placed in a comfortable position to address the increasing pressures of BYOD along with improved consumer solutions. Despite the slow moving PC demand, Dell’s diversified portfolio of solutions across Networking, Cloud services, Enterprise IT Solutions continues to grow at an acceptable pace. According to Gartner, the Enterprise IT spending is expected to increase by ~2.5% to ~2.7 trillion in 2013 and Dell, with its strong focus on complete Enterprise IT solutions, will be benefited with this increment. Even though Dell will face some challenges in its transition in the short run, its long-term growth fundamentals remain intact, with a strong transformation policy that can put the whole scenario of the company on the profitable track. I would rate this stock a buy for long term investors.


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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