Over the years, Dell (NASDAQ:DELL) has shifted focus from its hardware business more towards service offerings, given its stable revenues and better profit margins. As a result, the firm has witnessed a decline in the mix of revenues coming from its printer and display monitor businesses whose contribution to the firm value, currently at just under 5%, is losing significance. Dell competes with personal computer manufacturers like HP (NYSE:HPQ), Apple (NASDAQ:AAPL), Acer (TPE:2353) and Toshiba, as well as IBM (NYSE:IBM) and others for IT services.
We currently maintain a $22.39 price estimate for Dell’s stock, roughly 50% ahead of market price.
Dell’s Printer Business
Dell is a very small player in the printer market compared to HP, Samsung, Cannon, and Lexmark (NYSE:LXK) with less than 5% market share. Its offerings include both the inkjet and laser lines of printers. Most of its printers are sold in bundes with its PCs.
Limited Market Share in Slowing Printer Market
Overall, printer sales have slowed with the emergence of wireless networks for printer sharing. As such, printer sales per PC have declined for the last couple of years. Dell’s small share in the printer market means the firm generates hardly enough revenues to maintain a healthy profit margin in the printer hardware business, which has high associated costs.
Also, Dell has previously resorted to cutting down printer prices in order to compete with competitors like HP and Lexmark. As the market shrinks, Dell might have to drop prices further, making it more difficult to run the business profitably.
Dell’s Display Business
Dell is the 2nd largest player in the display market after Samsung, which overtook Dell as the market leader as a result of increasing sales of its LCD monitors.
Fate of Displays Tied to Desktops
Most Dell monitors are sold with Dell desktops – standalone sales of its monitors are very small. The upgrade cycle to LCD monitors saw Samsung surpass Dell as the market leader due to its prominence in the stand alone monitor market.
Since displays are most commonly sold along with desktops, Dell’s display fortunes rest on desktop sales, which are suffering at the hands of notebooks, netbooks and now tablet devices.
