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Dell to go private?

The Dell logo is displayed on the exterior of the new Dell research and development facility on October 19, 2011 in Santa Clara, California.

Dell lost bragging rights as the top global PC-maker to Hewlett-Packard back in 2006. And until recent reports surfaced of a possible private-equity leveraged buyout, Dell’s stock had been suffering.

Dell stock rose 13 percent to an eight-month high on word of the buyout talks, which, according to news reports involve the private-equity firms TPG and Silver Lake Partners, along with Michael Dell, founder and CEO. Michael Dell owns about 15 percent of the company and would likely remain at its head.

Dell has not been alone in losing market share in recent years. The PC market as a whole is hurting, says technology analyst Chris Green at Davies Murphy in London. Green says Dell, Hewlett-Packard, and Lenovo are all struggling to cope with new market forces, “because their whole business model has been based around volume PC sales. And the simple fact is that with the emergence of tablets, with more emphasis on lighter devices that do more in the cloud, the normal PC, the laptop as we know it, just becomes more and more redundant.”

PC shipments fell 4.9 percent in the fourth quarter of 2012 from one year earlier, according to research firm Gartner. It’s the first fall in PC shipments during the holiday shopping season in five years, according to IDC, which reports Dell’s shipments fourth-quarter shipments fell 21 percent.

Technology analyst Carl Howe at the Yankee Group says the PC still has a future, just not as the predominant IT tool for businesses and consumers.  "You're going to see the PC evolve into a professional tool," says Howe, "one for people who create complicated documents, and less in the light, 'I want to send an email' or 'I want to browse the web' work environment.'"

Chris Green says Dell has a solid shot at success -- as a smaller niche tech company. And he agrees Dell might do well to retool as a privately-held company, shielded from the scrutiny of Wall Street analysts and their quarterly earnings expectations.

“There continue to be some very profitable low-margin, low-volume parts of the PC market -- gaming for instance,” says Green. “Dell invested a few years ago in a company, Alienware, that specializes in high-end PCs for gamers, and that continues to do well for them.”

Dell has also expanded into IT services for businesses -- everything from storage technology to security software. It bought Perot Systems Corp. for $3.9 billion back in 2009. These are considered promising areas for Dell’s growth in the long run, although it will still be a challenge for the company to replace its traditional business of custom-built PCs.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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