Biz Break: Dell goes private, will drastic move from Hewlett-Packard be next?
02/05/2013 03:55:09 PM PST
02/05/2013 04:49:09 PM PST
siliconvalley/quote?Symbol=HPQ">HPQ), is also considering big changes, including possibly breaking up the company, according to a report later in the day.
Today: Personal-computer maker Dell pays billions to become a private company again, and a report says that HP is considering a different move, breaking the company into pieces. Also: Zynga turns a surprising profit, Apple (AAPL) and Wall Street rebound.
Uncertain future remains as Dell makes move, HP reportedly ponders change
FILE - In this Monday, Nov. 13, 2000 photo, Michael Dell, Chairman and CEO of Dell, speaks during his keynote address at Comdex, in Las Vegas. It's easy to forget now, but Michael Dell was the Mark Zuckerberg of his time. Hailed as a young genius, he created the inexpensive, made-to-order personal computer in his dorm room and peddled it to the masses, but now the PC is being eclipsed by smartphones and tablet computers, and Dell is trying to save his company. (AP Photo/Mark J. Terrill, FIle)
MARK J. TERRILL
As the personal-computer market continues to struggle, the No. 2 U.S. PC maker announced a drastic move Tuesday: Founder and CEO Michael Dell teamed with Microsoft and Menlo Park-based Silver Lake to purchase Dell back from investors and take it private for more than $24 billion. The only PC company larger than Dell, Palo Alto's Hewlett-Packard (
The Dell deal is the largest leveraged buyout in more than five years, and the second largest ever in the technology sector. At a per-share price of $13.65, the parties involved would pay $24.4 billion for the company, with Michael Dell contributing his 14 percent ownership stake and an undisclosed amount of cash and Microsoft providing a $2 billion loan. The rest of the cash will come from Silver Lake and an estimated $15 billion in loans that Dell will have to pay back as it attempts to transform its business into one with a brighter future.
"Dell's transformation is well under way, but we recognize it will still take more time, investment and patience. I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company's transformation strategy," Michael Dell said in a memo to employees.
Investors have 45 days to strike down the plan or find a bidder willing to pay more, and the price was already causing consternation Tuesday.
The deal would allow Dell to avoid more of that type of investors' angst as it attempts to change its business, according to analysts. "Now, they have the opportunity to be more aggressive and flexible, fix things and turn it around," FBN Securities analyst Shebly Seyrafi told Bloomberg News.
What that future will look like is anybody's guess. Several analysts suggested Dell would follow IBM's path of focusing on enterprise software and services; however, IBM has already found success with that plan, and Dell would have to fight even more big tech companies than just HP, which is farther along that route with its software acquisitions. Dell would likely be unable to match those acquisitions, either, as it will already have a huge debt load from the buyout.
"Under a new private company structure, we will have time and flexibility to really pursue and realize the end-to-end solutions strategy," CFO Brian Gladden told Reuters, bolstering the view that Dell will challenge the tech leaders in offering a complete package to businesses.
Dell may have a trick up its sleeve, however: Quartz reported last month that the company is looking to a PC-less future using technology acquired in a previous transaction, Wyse. That company's CEO, now a Dell executive, is looking to advance the notion that a PC can be no more than a small flash drive, with everything else -- including the operating system -- living in the cloud.
That plan could have some legs, but there is unlikely to be a panacea for PC manufacturers, which are suffering through declining sales and the rise of mobile devices like tablets, which could soon sell better than the products Dell and HP are pushing. HP remains at the top of the PC heap worldwide, but even the Palo Alto tech giant is being forced to rethink the basics of how its company is structured.
Meg Whitman's company -- which released its own statement about the Dell deal, saying "The company faces an extended period of uncertainty and transition that will not be good for its customers" -- is considering massive changes, including one that the CEO has already shot down: Breaking up the company. Quartz, The Atlantic's business-news website that launched last year, reported Tuesday that HP's board is considering spitting the company apart as it looks for new tactics for the bedraggled tech giant.
With investors unhappy about HP's share price, many analysts believe that HP could see more of its true value by splitting the PC division off or in some other way separating its myriad divisions into different companies with their own stock prices. However, the board has not formed a committee to study the idea any further and is unlikely to make the move, the report said.
Still, the fact that HP would entertain the notion after CEO Whitman famously denounced the idea upon taking over the tech giant shows that it is desperate to find a path to a more prosperous future, just like its now-private rival.
HP shares gained 2.7 percent on the day to close at $16.61, though the price jumped about 4 percent higher in after-hours trading following the Quartz report. Dell shares, which had already gained about 25 percent since reports of the leveraged buyout and its price began to leak earlier this year, increased 1.1 percent to $13.42.
Zynga and Shutterfly shoot higher after beating earnings expectations
In Tuesday's biggest Silicon Valley earnings report, San Francisco video game company Zynga reported a surprising profit that helped boost the company's slaughtered stock price to almost $3 a share, a level it hasn't reached in months.
Zynga's fourth-quarter results showed revenues that were even with the same quarter last year at $311 million, but adjusted earnings came in at 1 cent a share when analysts were expecting the company to announce a loss of 3 cents a share. The gains also surprised Zynga, which forecast losses for the quarter last year, when it made cutbacks across the company.
The layoffs and office closings Zynga executed seem to have cut back on costs, allowing the company to surpass profit expectations, but Zynga's forecasts continue to be dour: The company expects revenues to decline in the current quarter, which would be the third consecutive sequential decline.
"The good news is they're still alive, and they don't appear to be going out of business," BTIG analyst Rich Greenfield told The Wall Street Journal, before adding, "2013 looks like another tough year."
Redwood City-based Shutterfly also beat analyst expectations for earnings Tuesday, and it was not close: The photo-services provider reported fourth-quarter profits of $1.40 a share on revenues of $351.8 million, while Thomson Reuters reported projections of $1.01 per share on revenues of $309.7 million. It is the ninth consecutive quarter Shutterfly has exceeded expectations, but the massive beat on Tuesday was helped by encouraging signs from the company's enterprise offerings.
Zynga stock gained 7 percent in Tuesday's regular session to close at $2.74, then moved 5.8 percent higher in late trading to $2.90. Shutterfly increased 3.2 percent in regular trading to $33.59, then flew 14.6 percent higher to $38.50 in after-hours trading.
Apple helps Wall Street rebound, but Dow stays below 14,000
Wall Street rebounded from its case of the Mondays with strong gains on Tuesday, but the Dow Jones could not get back to the 14,000 mark it achieved at the end of last week. Technology stocks led the way, as the tech-heavy Nasdaq topped the major U.S. indexes with a gain of 1.3 percent, and the SV150 moved 1.8 percent higher.
The biggest reason for those moves was Apple, as the most valuable company in the United States also turned around losses suffered Monday and moved 3.5 percent higher to close at $457.84. Other strong Silicon Valley performances Tuesday came from Foster City-based Gilead Sciences (GILD), which gained 2.4 percent a day after releasing its earnings report; Redwood City's Electronic Arts (ERTS) gained 5.6 percent as it released a highly anticipated video game, Dead Space 3; and Yelp advanced ahead of its earnings report, scheduled for Wednesday.
Silicon Valley tech stocks
Up: Zynga, EA, SunPower (SPWRA), Yelp, Apple, Applied Materials, Advanced Micro Devices, HP, SolarCity, Gilead, Symantec, Nvidia, Facebook, Yahoo (YHOO), Intuit (INTU), eBay (EBAY), Cisco (CSCO), Intel (INTC), Adobe (ADBE), Tesla, Oracle (ORCL), LinkedIn
Down: Jive, Workday, Netflix
The tech-heavy Nasdaq composite index: Up 40.41, or 1.29 percent, to 3,171.58
The blue chip Dow Jones industrial average: Up 99.22, or 0.71 percent, to 13,979.3
And the widely watched Standard & Poor's 500 index: Up 15.58, or 1.04 percent, to 1,511.29
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.