The answers are a resounding “no” for HP (NYSE:HPQ) and a surprising “hardly” for Dell (NASDAQ:DELL). Over the past few years, both companies have been transforming their core businesses from traditional technology hardware (PCs, printers, servers, storage) to services and software. Following the lead of IBM (NYSE:IBM), these companies are increasingly looking to help medium and large businesses make technology and business process decisions.
Dell’s PC Business Only 18% of Stock
In the case of Dell, the company is more dependent than HP on its PC business. Dell is also less diversified than HP with many of Dell’s other businesses (software, printers, displays) buoyed by demand for Dell PCs. However, the core standalone value of Dell’s PC business is not as high as many people might expect.
Within Dell’s PC business, the value of the notebooks segment is much greater than desktops due to the on-going and future shift away from desktops to notebooks. We estimate that the notebook PC business accounts for 14% of Dell’s value while the desktop PC business accounts for only about 4%.
Mr. Market is even less excited about Dell’s PC business than we are. With the $21 Trefis price estimate for Dell, the implied contribution of Dell’s $8.4 billion in net cash is only about 22% to the Trefis valuation for Dell. However, Dell’s market price is currently around $14, implying about a $26 billion market cap and that Dell’s net cash accounts for nearly a third of Dell’s market value.
HP’s PC Business Only 15% of Stock
We estimate that HP’s PC business accounts for only 15% of the $47 Trefis price estimate for HP’s stock. This makes HP’s PC business the #4 most valuable business for the company. We wrote about this business in a note yesterday titled: See HP’s 3 Most Valuable Businesses.
