It’s official, Michael Dell is going to get his company back. It’s not coming cheap at $24.4bn but at least he’ll be given a much freer rein as a “true visionary and one of the pre-eminent leaders of the global technology industry” (in the words of Egon Durban, managing partner at Silver Lake which is part of the buy back) to turn the company’s fortunes around away from the public glare and from Wall Street.
For people who are relatively uninformed about financial matters looking at this deal from the outside, it would appear to suggest that being a public company can be detrimental to your company’s financial health and its strategic well-being. Why else would Michael Dell who, apart from a short period of three years, has been at the helm of Dell since he formed the company almost 30 years ago, choose to go private?
If you look at the acquisitions Dell has made over the past three years or so, they are all part of a strategy aimed at expanding the company beyond its PC hardware roots into software, storage and services. As Dell himself stated only last year: “We’re not really a PC company anymore. We’re an end-to-end IT solutions company.” The fact that Dell feels he has to take the company private to deliver on those comments says something uncomplimentary about Wall Street’s failings.
Anyway, the deal raises a couple of interesting questions. The first one is whether Dell can actually succeed in re-inventing or reforming the company. There’s no doubt it’s something that needs to be done. As others have noted, the company’s share in its mainstay market of PCs has been slipping at a time when that market is declining anyway. And it’s been slow to capitalise on the opportunities presented by the fast growing markets of smartphones and tablets.
Some might argue Dell’s symbiotic relationship with Microsoft and Intel has hamstrung the vendor’s ability to enter markets like tablets where its OEM partners have struggled to make an impact. In fact, you could argue that Microsoft and Intel’s failure to recognise the potential of those markets effectively squandered any opportunity Dell might have had to enter them successfully.
You might also argue that neither of those product segments seems, at first glance, to have much to do with Dell’s focus on becoming a sort of mini-IBM that could act as an end-to-end IT solutions provider to businesses. Certainly, IBM hasn’t wasted any effort trying to produce its own tablets and smartphones.
But here’s the thing, if you were Michael Dell and you were trying to establish the company’s bona fides as an end-to-end IT solutions company and to reduce your reliance on your PC roots, would you really be taking $2bn of Microsoft’s money? According to an article in The Wall Street Journal , the deal was not dependent on Microsoft’s $2bn loan but a source familiar with the deal claimed Silver Lake wanted the loan to ensure strong ties between Microsoft and Dell.
And this brings me to the question of just what Dell’s future product strategy will entail. The Microsoft angle has some people speculating that as sales of PCs and laptops continue to decline and the software giant is forced to target tablets, Dell could play a significant role in helping deliver on that.
For its part, Microsoft states very clearly that this loan is about “the long term success of the entire PC ecosystem”, building that ecosystem for the future and supporting partners that “are committed to innovating and driving business for their devices and services built on the Microsoft platform”.
The only quibble I have with that argument is how it fits with Dell’s focus on end-to-end IT solutions or whether it merely serves as a distraction. We shall have to wait and see but I can’t help feeling Microsoft will expect something back for its money and the issue is whether that payback will have a constraining effect on some of the decisions Michael Dell could take if he hadn’t taken Redmond’s money. If the source in the Wall Street Journal article is correct then the investors were seeking some form of reassurance with the Microsoft loan but the comfort of the familiar might, as with other relationships, act as a straitjacket.
The other unanswered question that should exercise us is what effect going private will have on Dell’s channel operation. It’s only five years since the company introduced a formal channel structure after Michael Dell spent many years publicly disparaging the channel to Wall Street, investors, journalists and anyone else who would listen. There is a question over whether he is completely convinced of the merits of the channel or whether he might be open to changing course. Yes, the company has crossed the Rubicon on this issue but it doesn’t mean it can’t go back. It’s unlikely, especially as a number of its acquisitions have brought their own channels with them, but you never know and I assume rivals will be making mischief and exploiting any uncertainty they can.
When Steve Jobs returned to Apple in 1997, Dell stated that he should shut the company down and give the money back to the shareholders. It’s fair to assume that over the intervening years as Apple’s fortunes soared and his own company’s wavered Dell probably regretted having been so flippant (or at least having appeared so flippant). Of course, Dell isn’t closing the company but the fact he has decided to follow his own advice and give the money back to the shareholders, knowing the context and how quite a number of smartarse journalists would dredge up that quote, you have to think he’s very, very keen to get his hands on the business again and take it private.
The issue is whether taking the company private will prove to be the panacea to cure all the company’s ills. To date, Dell’s reputation has been built, for the main part, on his prowess in the PC market. Now, he has the opportunity to try to fulfill Durban’s description of him as a “true visionary and one of the pre-eminent leaders of the global technology industry”. Along with Silver Lake and others, Dell is paying $24.4bn for the privilege for trying to do just that.
This was first published in February 2013