Michael Dell Investing in PCs and tablets

Dell Inc. DELL PC and tablet trends point to a big future with growth opportunities for investors. CEO, Michael Dell showed interest this month promising to invest in Dell’s PC and tablet business. The stock is up 30% over the past three months. Michael Dell noted in a memo filing with the Securities and Exchange Commission April 1, We have plans to significantly increase investment cost of managing IT for more than 100,000 customers worldwide in our PC and tablet business to enhance our ability to compete. While Dell’s strategy in the PC business has been to maximize gross margins, following the transaction, we expect to focus instead on maximizing revenue and cash flow growth with the goal of improving long-term sales and competitive positioning. PCs account for 70 per cent of Dell's revenues. The entire PC market shrunk by 13 million boxes in 2012 as consumers adopted smartphones and tablets. Dell’s value is at $22 billion. Dell’s quarterly cash dividend of $0.08 per share will be payable on April 22, 2013.

Dell's strategy in the PC business has been to maximize gross margins, following transaction, to focus instead on maximizing revenue, cash flow growth with the goal of improving long-term sales and competitive positioning. Dell would compete in emerging markets Brazil, Russia, India and China. "In addition, we expect to expand aggressively in other parts of Asia, Latin and South America, Central and Eastern Europe, the Middle East and Africa. Dell would hire more sales personnel and invest for growth in the PC and tablet business," Michael Dell stated in the memo.

Michael Dell, founder of Dell Computers announced this year that he will be partnering with Silver Lake Management to have a $22 billion bid for Dell and help with a $2 billion loan from Microsoft. Offers from billionaire corporate raider Carl Icahn and investment fund Blackstone Group had not yet been finalized. According to Reuters, the fees paid out to banks and advisors in the proposed $24 billion-plus deal for Dell might surpass the $400 million mark.

Silver Lake Management relies on several banks for $13.75 billion in financing, amounting to an estimate $330 million in fees. The banks included are BofA BAC, RBC RY, Credit Suisse CS, Barclays BCS, Deutsche Bank (NYSE: DB), and UBS. For Dell, the list is JPMorgan (NYSE: JPM), Evercore (NYSE: EVR), and Goldman Sachs (NYSE: GS). The entire group combined would earn an estimated $167 million.

Dell's XPS18 all-in-one tablet

Dell's XPS 18 offers an 18.4-inch Full HD (1920 x 1080-pixels) touchscreen and five hours of battery life. It weighs in at just 5 lbs. XPS 18 models are based on third-gen Intel Core processors and Windows 8, and all come with an integrated dock and wireless keyboard and mouse. The XPS 18 will be available on April 16 starting at US$899.00.

Competition

Apple Inc. AAPL iPad, Macbook and iMac products reflected PC and other vendors' inability to come up with compelling alternatives. That is largely due to the immaturity of competitive platforms and technologies.

Apple’s consensus estimate is for earnings per share of $10.13 on revenues of $42.7 billion. Shares fell 17% in the first quarter on concerns over slowing demand for its iPhones and iPads, following a 20% drop in the fourth quarter. The last time the stock declined two subsequent quarters in a row was in 2008 when it shed 49% from $167.44 at the end of the second quarter to $85.35 at the end of the fourth quarter in 2008.

Microsoft Corporation MSFT Microsoft's Windows 8 marketplace impact was anything but revolutionary. Windows 8's agitated many PC users. The high cost of many Microsoft systems made them a tough sell in economic conditions. The numbers could change as the economy is still in recovery from the crisis.

Microsoft ended the day down by 14 cents a share to close at $28.79 April 11. The disappointing PC sales indicated weak demand for its Windows 8 operating system that just hit the market over the fall. The stock traded down 4.4% to close at $28.93. IDC reported that PC sales slid nearly 14% in the first quarter.

For investors, Michael Dell’s outlook shows that the IT trends are now pointing in an aggressive growth direction. The future is tablets and cloud. Gartner states 4.4 Million IT Jobs Will Globally Support Big Data By 2015. By 2016, half of all non-PC devices will be purchased by employees. Dell wants to invest in PCs and tablets to compete with rivals. Investors should pay attention to what is happening now, how the PC and Tablet market is behaving.