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Dell’s move to go private reflects PC sector woes

News that Dell has decided to go private is a telling statement on the fortunes of the PC industry
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First Published: Tue, Feb 05 2013. 10 20 PM IST
The deal gives Dell breathing space to concentrate more on cloud computing, or Internet-based technology services.
The deal gives Dell breathing space to concentrate more on cloud computing, or Internet-based technology services.
Talk of Dell Inc., the world’s third biggest personal computer (PC) maker, going private has been doing the rounds for the last two years. News that the $59 billion company has decided to take the plunge and go private in a deal valued at $24.4 billion is a telling statement on the fortunes of the PC industry, given that Dell was the poster boy of supply chain practices and made most of its money by shipping PCs to individuals and companies until a few years back.
Global PC sales fell 3.5% in 2012 to 352.7 million units, research firm Gartner Inc. said. Dell’s market share fell from 12.3% to 10.7%. Dell is not the only PC maker to have been affected. Hewlett-Packard Co., chip maker Intel Corp. and Microsoft Corp. have also borne the brunt of the consumer and enterprise shift to mobile devices.
There are other ways of looking at this deal, which is yet to get shareholder approval. One, that it gives Dell breathing space to concentrate more on cloud computing, or Internet-based technology services, without worrying about what investors have to say about its dwindling PC hardware business. Dell introduced many infrastructure products in 2010, including Hyper-V Cloud and Virtual Infrastructure System (VIS), a move aimed at countering similar services from IBM Corp., Cisco Systems Inc. and Hewlett-Packard.
The other is that it can strengthen its ties with Microsoft—the deal involves private equity firm Silver Lake, Microsoft, and Dell chairman Michael Dell—that still makes most of its money from selling operating systems on PCs (Dell being one of Microsoft’s large customers) but has now realized the value of cloud computing with its Azure platform and smartphones which also explains Microsoft’s deal with Nokia Oyj for the Windows Lumia phones.
Dell’s phablet (remember Dell Streak?) and smartphones, though, have not made any impact till date even as mobile devices are gaining much more mindshare with consumers and companies.
India has been good to Dell till date. The Texas-based Dell, which announced its presence in India in 1996 with a series of call centres for customer support, set up its first India manufacturing base in Tamil Nadu in 2007, and now employs nearly 25,000 people in the country, second only to the US.
According to a September report in Dataquest, a CyberMedia (India) Ltd publication, Dell is increasingly taking the route IBM and HP did a few years back by investing its energies on growing its services business. In infrastructure services, it signed on several new customers across verticals. Clearly its services play has significantly changed since it acquired Perot Systems in 2009, the report said. In 2011-12, Dataquest pegged Dell India’s revenue at Rs.8,662 crore.
In December 2012, IT veteran Suresh Vaswani, formerly the joint chief executive officer (CEO) of Wipro Ltd, was promoted as the new president of its $8.3 billion software services and outsourcing business. Dell has been attempting to expand the proportion of its revenue from the lucrative software and outsourcing business, a market dominated by multinational rivals such as IBM, Accenture Plc, and Indian firms including Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd.
However, going private does not guarantee Dell’s success since companies such as networking-equipment maker Avaya Inc. and SunGard Data Systems Inc. have struggled since going private. Dell has seen vicissitudes in its fortunes ever since its initial public offering in 1988. Michael Dell, who founded the company with $1,000 in 1984, had ceded the CEO role to chief operating officer Kevin Rollins in 2004 only to return to the helm in 2007 after the company lost its top PC spot to Hewlett-Packard and earnings fell short of estimates.
Michael Dell, who owns 14% of Dell shares and will stay as CEO, still has to work with Silver Lake. If he plans to grow big by acquisitions, he will have to do so by paying cash. Raising money from the market will no longer be an option. And Microsoft may not hold a stake, but will want its pound of flesh. Nevertheless, the deal—if it goes through—will serve as a very interesting business case study.
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First Published: Tue, Feb 05 2013. 10 20 PM IST
More Topics: Dell | Michael Dell | PC | deal | private |
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