Is Dell finally turning a corner? Five years after Michael Dell returned to lead the PC maker he founded and transformed into a colossus, Dell may actually be ready for a second act. But the next several months will be crucial in determining how strong any recovery will be.
Between 1995 and early 2000, Dell's (DELL) stock enjoyed one of the biggest rallies -- even for the tech sector -- rising nearly 900% to $59 a share. The dot-com crash brought it back down to $16 share by the end of 2000, but the strength of its brand in the PC market helped Dell rebound to $42 over the next four years as Dell's reputation for efficient manufacturing and assembling customized PCs made it the market leader.
But in 2005, following the departure of Michael Dell as CEO, Dell's stock began to decline again, pushing the price back down below $20 a share in early 2006. Hewlett-Packard (HPQ) and Chinese manufacturers such as Acer began competing harder in laptops. Michael Dell returned as CEO in 2007, vowing to revive the company.
But as HP is learning, turning a tech giant around is a grueling process that can take years. In February 2009, the Great Recession brought Dell's stock down to $8 a share. After that, it rebounded to and hovered around the $15 mark for a few years. Meanwhile, netbooks and then the iPad and other tablets became hot items, slowing growth rates for PCs and laptops. The company that helped invent the modern PC company was suddenly living in a "post-PC world."
But this year, the company’s stock is signaling that investors are starting to believe in Dell again. The stock rose to $18.33 a share in February, marking a 25% gain from the beginning of the year. The key reasons: Dell’s efforts to rely less on PC and laptop sales and more on services, servers and storage are working. Meanwhile, the company is pushing harder into higher-end PCs so it doesn’t have to compete with Apple’s (AAPL) iPads and Amazon’s (AMZN) Kindle Fires.
Over the past six fiscal years, PCs and laptops have shrunk from 65% of revenue to 54%. Meanwhile, servers have gone from 10% to 13%, while the services division, which includes consulting and handling IT for companies, has risen from 8% to 13%, partly through acquisitions of companies like Perot Systems, an IT services company, for $3.9 billion and Boomi, a cloud-computing company, for an undisclosed sum.
Over the past several months, Dell has stepped up the pace of its acquisitions in the services area. In February, it bought AppAssure, a backup software vendor. A month later it bought network-security firm Sonicwall. And in the past week, news emerged that it's buying Wyse, a maker of thin-client systems, for $375 million as well as Clerity Solutions, another IT services company for an estimated $1 billion.
These moves are encouraging because they show Dell is focusing on its areas of growth. In its last fiscal year, PC sales fell 4% while laptop and tablet sales rose 1%. Meanwhile, sales from servers grew by 10% and sales from its services division grew by 8%.
And despite all the talk of a post-PC era, Dell isn't doing too badly all things considered. In the last quarter of 2011, Dell's share of the PC market rose to 12.6% from 11.6% a year earlier. HP's share, meanwhile, fell to 16% from 18.8%, but Lenovo's share rose from 11.3% to 14%.