Dell Might Be Tech’s Cheap Dark Horse

Dell has evolved into a titan of huge-but-mature tech hardware markets.



Photo:

Thiago Prudencio/Zuma Press

Nobody expects much from

Dell

DELL 2.92%

these days. That might turn out to be a good thing for the 38-year-old tech giant.

Dell is one of only six U.S.-listed tech companies currently generating more than $100 billion in annual revenue. It is also the cheapest by miles, trading at less than six times forward earnings compared with the 20 times averaged by

Apple,

Microsoft

and the parent companies of Google and Facebook (

Amazon

remains an outlier at 65 times.). Dell now even sports a substantial discount to close rival

HP

as news of a sizable investment by famed value investor

Berkshire Hathaway

has spared that company from much of the brutal tech selloff that has ensued since. HP’s shares have lost only 1% since Berkshire’s stake was reported in a securities filing early last month while Dell’s have tumbled 15% in that time.

Much of the market’s dim view on Dell can be attributed to the company’s evolution into a titan of huge-but-mature tech hardware markets such as personal computers, servers and data-storage systems. Following the completion of the spinoff of its ownership stake in

VMware

late last year, about two-thirds of Dell’s revenue now comes from PCs and related peripherals such as displays and webcams. These enjoyed a boost from the pandemic in what typically has been a slow-to-no-growth business. According to market research firm IDC, global PC shipments averaged an annual decline of 1.4% over the 10-year period before the pandemic’s start in early 2020.

PC shipments jumped to double-digit growth annual rates over the past two years, but that is fading now. Yet while Dell has long been a third-place player in PCs in terms of market share, its strong exposure to the corporate market relative to the more volatile consumer side has proven to be a boon. IDC says global PC shipments fell 5.1% year over year in the first quarter, but Dell’s shipments rose 6% in the same period while Lenovo and HP saw theirs fall 9% and 18%, respectively. Dell is also the only one of the three to have gained market share in 2021, per IDC’s data.

PCs are clearly through their pandemic boom. But with most companies settling into a hybrid work environment—with employees splitting their time between office and working from home—sales of PCs and peripherals are likely to remain elevated from their prepandemic levels. Simon Leopold of Raymond James says commercial PC demand “has remained healthy” even as consumer demand has cooled.

The near-term outlook for Dell’s server and data-storage business is a bit murkier given

Cisco Systems

’ most recent quarterly results. The network equipment giant posted a rare revenue miss for the fiscal quarter ended April and issued an even bleaker forecast, mostly blaming Covid 19-related lockdowns in China that have constrained the company’s ability to get the necessary components to ship its products. That report cast a shadow over other companies in IT hardware; Dell, HP and

Hewlett Packard Enterprise

shares have averaged a 8% loss since Cisco’s report.

But the selloff also might have set a low bar for Dell’s own results due for release on Thursday.

Toni Sacconaghi

of Bernstein estimates Dell’s backlog of orders for its Infrastructure Solutions segment grew by $1.2 billion in the fiscal quarter ended January, and he added in a note Friday that the company “has more control of its supply chain than others.” That won’t keep Dell fully immune to the problems afflicting its peers. In this market, though, absence of even worse news might just be good enough.

Write to Dan Gallagher at dan.gallagher@wsj.com

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Appeared in the May 24, 2022, print edition as ‘Dell Could Well Be Tech’s Cheap Dark Horse.’

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