Linked by Thom Holwerda on Tue 15th Jan 2013 01:24 UTC
Hardware, Embedded Systems "Dell, the personal-computer maker that lost almost a third of its value last year, is in buyout talks with private-equity firms, two people with knowledge of the matter said. The shares surged." So yeah, like I said - no wonder Microsoft has entered the hardware business. The PC OEM era is over.
Thread beginning with comment 548808
To read all comments associated with this story, please click here.
I don't get this
by justSomeGuy on Tue 15th Jan 2013 07:07 UTC
Member since:

It's really not like me to defend Dell of all companies, but I really don't get this.

I remember seeing a graph a few weeks ago in some other story about this topic, but I have no idea where I saw it. It showed that Dell's market cap had fallen by about a third, but sales were relatively flat. They were down by low single digits year over year.

I know sales aren't indicative of profit, but for a pretty mature company like Dell, I'd think if their sales are steady they should be good. So what gives? Are they suddenly mismanaging money? Is previous mismanagement suddenly being discovered? Or is this speculation?

Even though they may be projected to ship fewer boxes in the future, Dell gets a good chunk of cash from organizational support contracts. And afaik, those aren't really in danger.

Can anyone explain? I'm basing off of experience working with Dell about 5 years ago. Have things changed that much?

Reply Score: 2

RE: I don't get this
by boblowski on Tue 15th Jan 2013 10:06 in reply to "I don't get this"
boblowski Member since:

I'm not an economist, but the idea seems to be that a company like Dell is an interesting target for private-equity firms, just because it offers a solid base (stable sales and stock valuation) in a declining market (which enhances the vulnerability of competing companies in this market). With enough fresh higher-risk capital it can be turned into (or even broken up into) one or more smaller parts that each can pursue a more aggressive expansion strategy with a higher valuation.

For a less mature company or in a stable or growing market the risks of such a disruptive strategy might not way up to the potential return on investment.

Reply Parent Score: 3

RE: I don't get this
by OSbunny on Tue 15th Jan 2013 13:52 in reply to "I don't get this"
OSbunny Member since:

Share prices are based on prospects for future growth. Dell has limited prospects for growth so its share price suffers.

Reply Parent Score: 4