So Dell isn’t doing so well these days. The product line doesn’t have anything to distinguish the company from any other PC box assembler, so sales haven’t been in the doldrums for a while, particularly as we move to the Post-PC era. But that’s true with lots of PC makers, who believe that innovation is changing the color of the case, stuffing in a different AMD or Intel chip, or finding another dumb scheme to make a convertible note-book/tablet.
In the old days, it didn’t matter. PC sales were climbing fast enough that any company that could deliver them cheaply enough, in sufficient quantities to service the enterprise, and with at least adequate customer support, could get a decent foothold on the market.
Dell was founded in 1984, when 19-year-old Michael Dell, then a pre-med student, set up his computer business as a sideline. The PC ended up taking over his life, and the rest is history. But after making billions selling generic PCs, Dell has had a difficult time finding a second act, particularly with mobile gear taking an increasing share of the PC marketplace. This is the same dilemma Microsoft has confronted with Windows Phone and Windows 8, not to mention the so-far failed Surface tablets.
Well, in a move that will at least liberate Dell from the stock market race, the company has decided to go private in a deal totaling $24.4 billion. Curiously, Microsoft is putting up $2 billion as a loan to help fund the transaction, and I wonder how that decision will influence other PC companies who might decide they need to raise capital, or embark on a similar exercise.
Dell’s move is part of a restructuring designed to make the company more relevant to the 21st century. By not having to worry about expectations for profit and loss by the financial community, Dell is supposedly free to redirect the company to focus more on business services rather than the sale of cheap PCs, although PCs will evidently continue to deliver the majority of the company’s income.
So what’s really changed other than the structure of the balance sheet?
Well, a published report from Reuters mentions that “Analysts say the restructuring may entail job cuts and more costly acquisitions, as the company arms itself to do battle with larger and more established rivals like Hewlett-Packard Co. and IBM Corp.
Now I don’t know about you, but I do wonder how reverting from public to private will somehow be the magical bullet for Dell. It’s not that they couldn’t make strategic acquisitions and add more business services in their current incarnation, although the change also means they can’t be second guessed by anyone. There will be no stockholders to please, so if Dell fails big time in trying to remake itself, only Michael Dell, his team, and his employees need be concerned.
Speaking of employees, isn’t it strange how moves to make a company more profitable, more efficient, whatever, seem to often raise the spectre of job losses? So does Dell become more prosperous simply because fewer people are drawing paychecks, or will the company somehow be able to provide more value to the tech industry by shuffling paper and altering the balance sheets? Somehow I don’t think the move is going to make much of a difference, beyond making Michael Dell a richer man if revenues are high.
Yes, I can understand Microsoft’s motives for wanting to help finance the deal, and make it proceed as smoothly as possible. Dell remains a key OEM partner, to the tune of tens of millions of Windows and Office sales each year. Microsoft has a vested interest in wanting that lucrative partnership to continue. Having strong competitors in PC land is also a good thing.
But I wonder whether Dell’s move will spark any innovation at all, or does the company hope these unnamed business services will somehow change things for the better? Besides, it’s not that Dell would be better off emulating HP, which remains a public company, by the way, although the stock price is going nowhere.
After all, HP made this silly pitch about embracing more businesses services, and that decision has gone nowhere. Indeed, every move made by HP in recent years has demonstrated a lack of clarity and vision about the company’s future direction. Mr. Hewlett and Mr. Packard are no doubt rolling in their graves seeing how the company they built, which fueled the rise of Silicon Valley, has been on the skids for years. No, HP won’t go out of business anytime soon, but it’s not that they are doing anything to advance the state of the art, and it doesn’t seem as if CEO Meg Whitman has a clue about what to do next.
As to Dell: I’ve actually had positive encounters with the company over the years, and I wish Michael Dell well. In all fairness, he’s making a huge bet on this so-called “turnaround” scheme, and that includes his vast wealth. For the sake of Dell and his employees, I hope he succeeds. But I remain skeptical about financial maneuverings of this sort that really have nothing to do with products or services.
And it is curious that Michael Dell believes that, in returning money to shareholders, the company will somehow flourish. Indeed, one headline suggested Dell’s stockholders are being put out of their misery, and didn’t Dell once suggest that Apple return money to their shareholders?
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