Should Dell Go Private?

A year ago, Dell (NASDAQ: DELL ) CEO Michael Dell startled Wall Street when he
admitted he had considered taking the company he founded in his University of
Texas dorm room private. Given the entire recent hubbub surrounding a rumored
takeover of Hewlett-Packard (NYSE: HPQ ), Dell should consider the idea again.
Shares of the Round Rock, Texas-based company have slumped about 40% since
Michael Dell ousted Kevin Rollins and reassumed the CEO job in 2007. Dell the
man was seen as the only person capable of rescuing Dell the company, which was
reeling at the time after losing the leadership of the PC market to HP and an
SEC accounting investigation. The computer maker paid $100 million in 2010 to
resolve the accounting issue and for failing to disclose material information to
investors. Dell has remained in second place, though it has gained market share
on HP as the worldwide PC market contracted because of the growth of netbooks
and tablets. Ever since returning to the CEO job, Dell has tried to restore his
company's tattered image among consumers while at the same time trying to
prepare it for the post-PC world through a series of acquisitions in the storage
and services sector. So far, the computer maker has failed to reach its goal of
7% long-term revenue growth. Second-quarter revenue gained less than 1% . Wall
Street analysts expect sales to increase 4% for the fiscal year ending in
January. Investors began punishing Dell's shares again recently after the tech
firm slashed its earnings outlook after reporting an otherwise lackluster
quarter. Technology analyst Rob Enderle said Dell the CEO might have an easier
time transforming Dell the company away from the prying eyes of Wall Street.
"From an investment and balance sheet perspective, they are as good as they
ever have been," he said in an interview. "Dell is largely seen as a PC
company, though it largely isn't. They are being killed by being perceived as
being on the wrong end of an emerging technology (tablets and smartphone)."
Dell has not made much headway in the fast growing and increasingly crowded
tablet market. Its Streak 7 got a scathing review from Engadet , which said,
"When you combine its low-resolution screen, poor battery life and soon-to-be
outdated OS, we simply cant recommend it." The device not surprisingly has
not sold well. Dell is planning new tablet computers for next year that will use
Google s (NASDAQ: GOOG ) Android or Microsoft 's (NASDAQ: MSFT ) Windows 8.
Michael Dell is quoted as saying the new tablets look promising, but investors
shouldn't get their hopes up. Analyst Shaw Wu estimates than 45% of Dell's
business is subject to inroads by Apple (NASDAQ: AAPL ), according to Bloomberg.
Google's acquisition of Motorola Mobility (NYSE: MMI ) will only ratchet up
the pressure on Dell. The problem investors have with Dell is that whenever some
progress is made, it suffers a setback. Dell posted its highest gross margin
since 1992 in the first quarter. The results outshined HP for the second quarter
in a row . Things fell apart in the second quarter, though, as weakness in the
consumer business was not able to offset the strength of Dell's enterprise
solution and services business. To make matters worse, third-quarter revenue
will be little changed from the second quarter. Michael Dell has mocked HP's
plans to divest its PC business, so it is unlikely he will do it himself. Dell
needs to convince investors that its transformation to the post-PC world will be
successful. That will be difficult to do as a public company. Jonathan Berr does
not own shares of the companies listed. Follow him on Twitter at @jdberr.