News reports that Dell (DELL) is in buyout talks with private equity firms have touched off the usual speculation.
What would Dell be worth if it was sold? Toni Sacconaghi at Bernstein last week estimated that a sum of the parts analysis of Dell would get it to...$12. About where it is now, after the rumor got out.
The problem: who wants a declining PC business? Sacconaghi noted that PCs account for 70 percent of Dell's revenues and about 60 percent of its profits.
And Dell's share of that declining PC business is itself declining. The market leaders in PCs are Hewlett-Packard (HPQ), with about 16 percent of the market, followed by Lenovo, at 15.7 percent. Dell is a distant third with about 10.6 percent of the market, and it continues to lose market share.
Splitting the company in two--a PC and an enterprise business--seems more feasible than an outright sale.
Or an expansion of M&A activity...toward enterprise...also makes more sense. However, Dell's head of M&A, Dave Johnson, resigned last week to go to Blackstone. He was associated with an aggressive M&P strategy designed to diversify away from PCs.
That is not likely to change with his departure. Dell said as much at last week's Consumer Electronic Show, emphasizing that they were transitioning toward enterprise servers, storage, and services and away from PCs.
Strong cash flow? It's declining cash flow! Seems like a weak reason for buying the company outright.