Dell could prosper as private firm with Michael at the helm, say analysts

Becoming a private company under the stewardship of founder Michael Dell could help Dell avoid the position HP is in, say experts

As Dell becomes a private company in a $24bn deal with founder Michael Dell a majority stakeholder, experts think the move is aimed at pulling out of the public eye to re-invent the company as an infrastructure, software and services company and change the public perception of it being just a PC manufacturer.

It is evident that the PC market is declining and Dell wants to become a services, infrastructure and datacentre systems company, according to John Abbott, chief analyst at the 451 Group.

Earlier this month, market analyst Gartner predicted the demise of the PC industry as worldwide PC shipments totalled 90.3 million units in the fourth quarter of 2012, a 4.9% decline from the fourth quarter of 2011.

Most associate Dell with PCs and it is not a nice place to be in at the moment, said Tony Lock, research director at Freeform Dynamics. It becomes hard for them to understand that Dell can sell datacentre systems, disaster recovery and business continuity products, Lock said.

Experts think Dell’s imminent decision to exit the stock exchange will buy it some breathing space and freedom to steer the company in the infrastructure and services space.

It became evident at Dell’s Technology Camp Europe 2013 event that the company is looking to sell itself to a buyout consortium, Abbott said. 

“It is a very radical step and has come a bit sooner than I expected. We will have to wait and see how the move will play out, but it will allow them to do things in private without sharing the intimate financial details,” Abbott said.

Lock agreed that exiting the stock exchange is a good decision. It is not possible to think long-term when you are listed, as short-term quarterly revenue is all that matters, so this may be a good opportunity to decide what to do, Lock said. “It is too damn painful to simply report revenues and sales all the time.”

Whatever the buyout agreement, it is certain that Michael Dell will hold a majority stake in the private company, Abbott said.

Going private to avoid the pain of HP

“And that is a good thing,” said Roy Illsley, principal analyst from Ovum.  

“The general view is that going private under Michael Dell’s own control will help Dell escape the mess HP has got into.”

It will enable them to take decisions out of the gaze of the financial investors.

One of the challenges with Dell is that while it has made good acquisitions in the past, it has a set of competing tools.

“Dell acquired Quest, Wyse and Kace, all of which provide similar management tools and Dell is not able to embed them all into its products,” Illsley said. 

“As a private company, Dell will take a hard look at all its investment and cherry pick the technologies it wants to keep and get rid of the technologies and IP it doesn’t need.

“It is a lot easier to do that as a private company rather than doing it with investors’ inputs.”

None of the acquisition Dell has made so far have brought revenue but it may be early days still and strategising how to integrate all the technologies is what Dell should do in private, Abbott advised.

There may be more on Dell’s agenda as a private company, experts said. For instance, it will make software the centre-point of its overall business. 

“Dell will probably create ‘software lab environments’ where they will invest in new technologies and their trials and, as a private company, it doesn’t have to tell investors where the money is coming from,” Illsley said.

At its Technology Camp, Dell’s vice-president and general manager for enterprise systems and solutions, Dario Zamarian, said that the company has a good portfolio of products and its roadmap for 2013 will be to integrate all the products to become a converged infrastructure and end-to-end service provider.

“Sure, its acquisition has been balanced and strategic across the software, services and management space,” said Lock. “But the challenge for Dell is that it has people from hardware background who do not truly understand the software space.”

How the Dell-Microsoft deal will play out

One way of overcoming this challenge would be to collaborate with software or services providers, experts said.

And Microsoft is one company that many experts feel will fit well, as both companies want to focus on enterprise services business.

“It will be good to see Microsoft and Dell come together,” Abbott said. But the problem is that Dell has a lot of energy-efficient datacentre servers based on ARM chips and Microsoft is reluctant to see Dell move out of the Intel and x86 camp, he explained.

“This is because Microsoft themselves have not come up with services running on ARM chips,” he said. According to a Reuters report, Dell will sell itself to a buyout consortium led by Michael Dell, private equity firm Silver Lake Partners and Microsoft.

“Microsoft probably wants a bit of influence in the hardware world and Dell seems to be the right fit. Microsoft may end up having some stake in Dell,” Abbott said.

Dell, which is which currently valued at $23bn, will become a very big private company, experts said.

But Gartner analyst Adrian O’Connell said that one of the biggest challenges for Dell is to integrate its software and security capabilities with its end-user desktop computing. 

“However much Dell tries to become an enterprise-oriented software vendor, its PC business still accounts for more than half of its revenue and it needs to revive that business,” he said.

“Technology is not a challenge for Dell, but it is changing the customer perception and that will not happen overnight,” O’Connell said. And becoming a private company will help it focus on the “old Dell” which is the PC business and the “new Dell” which is enterprise services business, he added.

Experts are confident that the time out of the public eye and under its founder’s control will give Dell time to consolidate its disparate portfolio, focus on its enterprise infrastructure strategies and revive its ailing PC division.

Dell did not confirm or deny its buyout strategy and a Dell spokeswoman told Computer Weekly that it does not comment on market rumours and speculations.

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