For tech hardware companies like Dell (DELL), HP (HPQ), and Lenovo (OTCPK:LNVGY), what the pandemic has taken away with one hand has, at least to some extent, given back with the other. While the pandemic has hit demand for categories like storage, PCs volumes have been notably strong, helping these leading players in an increasingly consolidated market.
As with Lenovo, I expect Dell to see a shrinking benefit from PC demand, but demand for servers and storage should pick up, and longer-term initiatives like IT-as-a-Service (Project Apex) do offer upside. With the spin of VMware (VMW) now widely regarded as a done deal, Dell will also get a significant boost to its deleveraging efforts, even if at the cost of high-margin, above-average revenue growth and software exposure.
I thought Dell looked undervalued back in September, though I preferred Lenovo, and the 20% move since then has managed to beat the S&P 500 and NASDAQ, while lagging HP and Lenovo. I like the valuation better now relative to Lenovo, but I’m increasingly nervous about overstaying my welcome with this PC-driven upturn. I think improving storage performance and the eventual announcement of a VMware spin can maintain the momentum in 2021, but I’d guard against getting too greedy here.
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Strong Work-From-Home Offsetting Weaker Enterprise Trends For Dell
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