Dell once took on and beat IBM at their own game in the PC market. Will the reported acquisition of server and storage leaders EMC enable Dell to take on IBM, as well as HP and others once again?
In 1984 a 19-year-old Michael Dell built a company on a brand new direct sales model, using mail order magazines as its shop front. It undercut old IT behemoths like IBM, offering new efficiency in sales, manufacture and delivery, and low prices to go with it, and by 2001 Dell had become the world’s largest PC maker.
Any company forged in the earlier days of big iron found it hard to recognise, let alone respond to, the sea change low-cost PCs brought to IT users and buyers. Paradoxically, as a much larger and publicly listed company, Dell fell victim to similar dulled reactions.
The shift is to mobile devices caught Dell out. Tablets and smartphones have changed the way user interact and use IT, yet Dell continued to manufacture its desktops and notebooks and barely made an impact in the exploding mobile client sector.
Dell is no basket case organisation, but as a public company, it was beholden to itinerant shareholders who drop in and out of stock simply to take short-term profit, it became almost impossible to take a measured, long-term view of its business. This lack of agility and a drop in the PC manufacturing charts from first to third behind HP and Lenovo resulted in a loss of sheen for the stock.
Michael Dell has always retained a personal involvement in ‘his’ company, first as CEO and now as chairman of the board. So when one of Dell’s largest shareholders, Southeastern Asset Management, suggested that he might lead a plan to take the company back into private ownership, he acted. Without the limitations and demands of US public company law, perhaps Dell (the man) might be able to lead Dell (the company) out of the darkness, just as Steve Jobs did for Apple.
Frustratingly for Southeastern, Michael Dell thought it was a great idea and proceeded to find other partners to help him realise it. He assembled a bid with private equity firm Silver Lake, some of his own cash and equity as well as loans from Microsoft and various banks. All told the offer he put together for shareholders amounted to $24.4 billion through a leveraged buyout at $13.65 a share.
As expected Dell, is pursuing a tighter focus on the enterprise market, which the acquisition of EMC will solidify.Companies like VCE (a joint venture between Cisco and EMC) as well as established PC vendors like HP have profitably targeted the corporate need for virtualised computing power that can be implemented and quickly and painlessly.
Microsoft’s involvement in Dell going private was not considered significant, being a loan rather than a direct investment in the company. Most probably this is simply a chance for Microsoft to underwrite a staunchly Microsoft-centric hardware company that can continue to drive their products into the corporate world. With Microsoft increasing its focus on Azure, it willl be interesting to see how relationships develop between Dell and Redmond.