Tags: Dell | HP | Chanos | PC

Jim Chanos: Avoid PC Stocks

By John Morgan   |   Wednesday, 10 Apr 2013 07:58 AM

Noted short-seller Jim Chanos is bearish on the personal computer market, and singles out Hewlett-Packard and Dell as the rotten apples in a bag full of bad technology stocks.

Both adverse secular trends and questionable accounting practices are besetting the two PC makers, in Chanos’ view.

“I’ve been a big bear for the past 1 ½, two years in the PC space in the U.S., and I remain so,” he told Yahoo.

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“We are seeing a secular headwind in that business as more and more people go to mobility and tablets and the cloud. The PC-centric space is going to increasingly see negative surprises,” Chanos predicted.

Chanos, president and managing partner of Kynikos Associates, questioned certain accounting practices of both HP and Dell.

Both companies spend very little on research and development (R&D), he said, and instead prefer to make big acquisitions of new technology companies.

“So they’re buying their R&D. If they expensed their R&D like some of their bigger brethren do, they would be reporting losses,” Chanos explained.

“I am completely mystified as to what the buyout groups at Dell are seeing here because the business from a cash flow point of view, from an accounting point of view, is deteriorating right before your eyes and yet there seems to be a number of players who think this is the greatest thing since sliced bread," he told Yahoo.

As for the broader stock market, Chanos continues to regard the United States as “the best house in a bad neighborhood,” especially compared with other global markets such as Europe and China.

However, he said domestic stocks have gone up so much in the past three years that now he is finding it difficult to find attractive long stock investments.

Michael Dell’s attempt to regain majority ownership and control of Dell is set to become a central issue in a “complex chess game” that is heating up this week, according to the Financial Times.

The Dell founder is under pressure to abort his plan to buy more than half of the company’s equity, which he would achieve under the $24.4 billion deal he put together with private equity firm Silver Lake.

Private equity firm Blackstone wants to make a rival offer that would greatly dilute Michael Dell’s influence compared with the rival Silver Lake offer. And corporate raider Carl Icahn is believed to be readying a bid.

Michael Dell is being criticized by some shareholders for trying to take back control of his company “on the cheap” by offering $13.65 a share, the Times reported.

Meanwhile, at HP, years of leadership and strategic turmoil show no sign of abating.

“It's been a turbulent decade at HP, with board members and CEOs resigning or being ousted for all manner of colorful reasons, including strategic missteps, accusations of spying on journalists and alleged sexual harassment,” the IDG News Service reported.

The latest moves came last week, when two directors resigned and Ray Lane said he would step down as as chairman of HP's board following controversy over HP's ill-fated Autonomy acquisition.

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