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9/12/2013
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Michael Dell Wins: Now The Hard Part

Michael Dell finally succeeds in taking his company private. He plans to keep building PCs -- and bolster the enterprise portfolio with more acquisitions.

After months of challenges and setbacks, Michael Dell has finally succeeded in taking his company private. Now the CEO and founder's real challenge begins: Rebuilding a company that last month reported a 72% drop in quarterly earnings.

Dell shareholders approved the deal in a special vote Thursday morning in Austin, Texas. The deal is expected to close by the end of Dell's fiscal third quarter.

"This is a great outcome for our customers and the company," said Michael Dell during a conference call with analysts and reporters that followed the vote. He said the company would accelerate its effort to become a leading provider of end-to-end enterprise technology, and promised that Dell would "return to its roots" with an "entrepreneurial spirit."

Michael Dell announced in February that he had partnered with investment firm Silver Lake Partners to buy out the company. The effort provoked vocal opposition from influential investors, notably Carl Icahn, who said the CEO's offer shortchanged investors, and who repeatedly questioned Dell's leadership. Michael Dell eventually countered by increasing his buyout bid to nearly $25 billion, or $13.75 per share with a dividend of $0.13. The move set the final stage for the CEO's victory on Thursday. Dell's stock is down more than 40% since Michael Dell returned to lead the company in 2007.

During the conference call, Dell said the company is "on the cusp of the next technological revolution." He stated that trends in big data, mobility, security and the cloud are changing the world, just as the PC did 30 years ago, and that Dell will make these innovations simpler, more affordable and more accessible, just as the company did decades ago with computers.

[ Are PCs going the way of the landline? See Tablets To Edge PCs In Q4: IDC. ]

To do so, the CEO said Dell will extend its enterprise products through R&D and acquisitions, increase its sales coverage, add new partners to its sales channel and target emerging markets. Dell has presented similar laundry lists of objectives in the past, and many of his talking points on Thursday echoed remarks he made at Dell World in December, when he declared the company had transitioned from PC maker to enterprise service provider.

The difference now is that Dell can retool the company without Wall Street's watchful eye. The CEO alluded to as much Thursday, noting that as a private company, Dell can pursue investments without scrutiny.

Michael Dell also said the company will continue to invest in tablets and PCs, both of which have contributed heavily to the company's recent woes.

"The PC business has come unglued faster than they thought it would and Dell needs PC revenue to invest in [its] business transformation," IDC analyst Matt Eastwood told InformationWeek in May, when Dell announced financial earnings that were even lower than analysts' muted forecasts.

On Thursday, Dell offered few specifics regarding how it will reboot its PC business, but CFO Brian Gladden pointed out that the company, which remains the world's third biggest PC maker, has actually increased its PC market share in recent quarters. The company did so, however, largely by sacrificing profit margins to boost sales. Given that analysts expect PC sales to continue declining for the next year, Dell's "gains" are, in a sense, as much a part of the problem as the solution. That Dell's tablet business relies so much on Windows 8's shaky foundation is another area of concern.

Gladden said it's "hard" to pinpoint how much of Dell's future revenue will come from devices, as opposed to enterprise sales and services. "We see the value of a broad portfolio, and will make investments to play a leadership role in the PC market, and in end-user computing devices," he said. He stated the company will invest in areas that are growing, adding that recently, the market for enterprise services has grown faster than the market for PCs.

To build its enterprise portfolio, Dell has spent billions over the last several years to acquire various companies. Its portfolio now includes promising hyperscale and converged infrastructure products for data centers, as well as assets in security, storage and more. At Dell World, some customers even compared the company to IBM.

But Dell's new focus puts it in competition with larger and more established companies, including not only IBM, but also Microsoft, Hewlett Packard and Cisco. During the call, Michael Dell and Gladden both argued that Dell's relationship with customers will help it to differentiate its products and services. Both stressed, however, that the company's new persona will take time to develop.

Michael Dell also said the company will pursue both "organic and inorganic" investments. The company's buying spree dried up as the buyout drama played out, but once Dell is officially private, it's likely the company will announce new acquisitions to accelerate its enterprise goals.

Learn more about enterprise IT by attending the Interop conference track on the Business of IT in New York from Sept. 30 to Oct. 4.

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Laurianne
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Laurianne,
User Rank: Author
9/14/2013 | 12:28:54 PM
re: Michael Dell Wins: Now The Hard Part
Dell's strategy via acquisitions for the past few years has been to buy companies that make technologies that appeal to mid-market CIOs. The theory was woo the mid-market CIOs first, then woo the larger enterprises. I wonder if Michael Dell will stick with that approach now.
Michael Endler
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Michael Endler,
User Rank: Author
9/13/2013 | 8:40:13 PM
re: Michael Dell Wins: Now The Hard Part
Good point. That's the way Michael Dell is looking at it, certainly. The markets in which Dell wants to compete are "hard," but I think you're right: Michael Dell has a plan that he's been thinking about for a long time, and now he can throw it into action unencumbered. As much as it's hard, I can see why you'd also call it "easy."
D. Henschen
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D. Henschen,
User Rank: Author
9/13/2013 | 6:32:55 PM
re: Michael Dell Wins: Now The Hard Part
So to some degree, now comes "the easy part" because the company doesn't have to operate under a microscope. Dell (the executive) just has to execute plans he has probably had in mind for a long time. He clearly thought all that through and concluded his planned called for actions that wouldn't fly with stockholders.
Michael Endler
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Michael Endler,
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9/13/2013 | 5:27:37 AM
re: Michael Dell Wins: Now The Hard Part
I hope it does. Michael Dell is one of the wealthiest men in the world and could have done a lot of things at this point in his life. Politics, philanthropy, sailing the world in a yacht-- pretty much anything. He chose to spend billions of his own dollars to buy out a company that faces a lot of tough odds. That either speaks to hubris, conviction or both. But I think he's committed to turning it around, and that he wouldn't have taken the company private if he didn't think he could do it.
Michael Endler
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Michael Endler,
User Rank: Author
9/13/2013 | 5:21:19 AM
re: Michael Dell Wins: Now The Hard Part
Agreed. Wall Street doesn't have the patience that tech companies sometimes need. Even a company as rich as Microsoft faces substantial unrest when it doesn't hit certain numbers. Dell doesn't have a Microsoft-sized fortune to cover failed experiments, so given the radical changes Michael Dell is still making, I can see why he wants no part of Wall Street.
RobPreston
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RobPreston,
User Rank: Author
9/12/2013 | 7:32:38 PM
re: Michael Dell Wins: Now The Hard Part
Say this much for Dell: It's making moves. It's long past the denial stage and is in full turnaround mode. But the freedom now to make longer-term decisions doesn't necessarily mean it will make the right long-term decisions. Let's hope it all comes together.
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