A Private Buyout Won't Cure What Ails Dell

This is going to sound like heresy, but not even a superb supply chain can cure ordinariness. Somebody needs to tell the folks who are allegedly planning to take Dell Inc. private this plain truth before they commit their funds to a venture destined to fail. Let me be blunt: Leveraged buyout is not a panacea to what ails Dell.

I'll drive that home again. If Dell is taken private in a leveraged buyout deal, as a recent report has suggested, the PC vendor will most likely undergo a major reorganization, severe cost-cutting, product attrition, and other actions that will make it a smaller and more narrowly-focused enterprise. These moves will help reduce the company's overhead and other operating costs, creating the illusion that it is on the mend and could return to the equity market a vibrant and much more valuable brand.

That's what private equity aims for, but is that what will revive Dell?

A superficial makeover isn't what Dell needs because it won't spark growth at the company, and it certainly won't make it a darling of investors. What ails Dell is deeper than a private equity scalpel can sculpture.

In today's world of superstar products, Dell has become associated with the words "ordinary" and "commonplace." Dell computers lack the distinctness of Apple's Mac, and the company has no jaw dropping offerings in the smartphone or tablet PC world. If it's a Dell, it works like it's supposed to but lacks sizzle; it won't stop traffic or get you a date. Who goes out today, heart thumping, to buy a Dell?

Dell isn't making a splash in either the smartphone or tablet PC world, and in IT consulting, the company isn't particularly outstanding. What made Dell a champion is its excellent supply chain system, but this isn't a product anyone salivates over.

A supply chain is a behind-the-scene champion maker. It's never going to stand on a podium and collect a gold medal. The supply chain is critical to a manufacturer's success, and we celebrate best-practices such as agility and flexibility, but it's a system, not a product, and it shouldn't be used to distinguish an enterprise. Companies go to market with a product that is backed by an excellent supply chain, and not the other way around.

Notwithstanding the strength of a supply chain, the product is still the sales clincher. The problem with Dell is that aside from its vaunted supply chain system, nothing else stands out.

Think about this: Apple has the iPhone, iPad, iPod, iTunes, the Mac computer, and even the not-so-successful Apple TV; Samsung has its Galaxy series devices; Microsoft has the X-box, Windows operating system, the Surface Tablet PC, and many other gadgets and software applications; Research in Motion -- though a wounded and limping enterprise -- has the BlackBerry smartphone; and IBM, which sold its personal computing business, is well known as an IT consulting and business intelligence firm. What can anyone say Dell is reputed for?

Why do I think it's a bad idea to take Dell private? The answer is simple. I don't see the value that private equity would be able to unlock that can't be similarly delivered if the company remains a publicly-traded enterprise. Dell's revenue has stagnated around the $60 billion range. In the fiscal year that ended Jan. 30, 2009, it recorded revenue of $61.1 billion, followed by a sharp drop to $52.9 billion in fiscal 2010, then a swing back to $61.5 billion in fiscal 2011, and barely unmoved at $62 billion in fiscal 2012. For the fiscal year ending Jan. 30, 2013, analysts have consensus revenue estimate of $56.7 billion for the company.

Fixing this flat revenue trend-line won't happen by simply turning the company over to private equity specialists. What Dell needs is to couple supply chain excellence with a brilliant design chain. It may also require a new hand at the top, a development that is fraught with its own dangers. In a coming blog I'll take a stab at predicting Michael Dell's future.