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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 {complink 1544|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.

24 comments on “A Private Buyout Won’t Cure What Ails Dell

  1. Mr. Roques
    January 15, 2013

    I remember a few years ago when Dell computer entered the market with a great new concept. No more standard PCs, and from Dell on, customers could be the masters of their own PCs. What ever happened to that company? Lenovo is the brand that is getting all the normal pc crowd.

  2. _hm
    January 15, 2013

    I love Dell PCs. I have three of them in last three years for my family. All them work wonderful and I will not purchase any other brand PC. Dell has very good price and quality.

  3. bolaji ojo
    January 15, 2013

    Mr. Roques, The Dell you knew realized much like IBM did that the PC is a commodity market. In this segment, margin erosion is severe and the company has been struggling to maintain profitability. It is trying to expand into higher margin markets and hasn't been quite successful. PCs make up a bulk of Dell's sales but the company has been trying to change this.

  4. bolaji ojo
    January 15, 2013

    _hm, The quality of Dell's products is not in doubt. It's the customer attraction for them that is being questioned. Dell certainly makes great products but nobody (except maybe you) swears by them and in the mass market of phones and tablets, Dell hasn't made a splash.

    Plus, the market for PCs is being hurt by rising demand for tablets. This should be a concern to PC-centric vendors.

  5. Barbara Jorgensen
    January 16, 2013

    I agree that the quality of Dell's products isn't the issue. The fact that all PCs are of good quality now means Dell is no longer a standout. But neither is HP, at least in PCs. I wonder if Dell's BTO model still has some life in it in regard to customization. For instance, what if Dell configured your laptop/PC for you before it shipped?

  6. JordanHoong
    January 16, 2013

    I agree with you and I know that Dell has been trying to get on the boat of smartphones and tablets but it hasn't really took off. I can't really tie Dell to anything exciting except that they provide cost competitive PC's. Having said that, even though that they are not offering the gadgets that everybody wants-smartphone,smart TV's,tablets & etc..but they are still one of the main players offering PC's which everybody needs. No matter how tablets sales skyrocket, we can never replace the good old laptops….at least for the time being.   

  7. Houngbo_Hospice
    January 17, 2013

    @_hm,

    As Bolaji said, there is no doubt about the quality of Dell's products. But computing nowadays and in the future is more about mobility (smartphones, tablets) than PCs. A company that only speaks PC will not survive in this mobility era.

  8. Houngbo_Hospice
    January 17, 2013

    Windows 8's poor market performance has not helped Dell to make a come back and apparently Dell is failing to keep up with the time. Can we say that Dell's best day may be over? 

  9. bolaji ojo
    January 17, 2013

    JordanHoong, Thanks for the comment. It reminds me of one fact I had been pondering since, and that is this: Dell is still a big company with $60 billion in annual sales. You don't get to be that big without having done something right! Dell may be struggling now but it has the opportunity to bounce back. I don't think it needs to be taken private, though, since it will only compound the problems it has.

  10. Ashu001
    January 21, 2013

    Bolaji,

    Count me in as another Dell Fan!!!

    I agree with your critical points here;especially the fact that they Don't have any Superstar Products.

    But to say that the solution is “just ” Great Design beats it-I feel that Dell has a very strong Future(as a listed company) if they provide great quality,reliable Products at a Good Price to consumers(including in the Tablet and Smartphone space).

    Look what happened to Apple today-Its not having the Iphone 5 has protected them from Declining Sales-Has it?

     

  11. Ashu001
    January 21, 2013

    Houngbo,

    I disagree

    I don't think Dell's Days are over.

    Sure their days of Hyper-Growth are over but that does'nt mean they can't(and won't) remain a Company with Steady sales.

    In My opinion they need to work hard to improve in the Smartphone and Services space but still fight to retain control over the Declining but still massive PC space.

    They had sales of 57 Billion Dollars in 2012;a significant chunk of that came from PCs;it means somebody's still buying PCs right?

    How about being the First and Most important choice for anyone who wants to buy a PC?

    Don't you think that will strengthen the company?

  12. Ashu001
    January 21, 2013

    Jordan,

    I agree entirely with your sentiments here!

  13. Houngbo_Hospice
    January 21, 2013

    @tech4people

    “They had sales of 57 Billion Dollars in 2012;a significant chunk of that came from PCs;it means somebody's still buying PCs right?”

    Of course we will continue to use PCs for most of our computing tasks and Dell PCs will still sell well for the next few years. But this might not be enough for the company to secure substantial revenues in the future.

  14. Ashu001
    January 21, 2013

    Houngbo,

    I highly recommend you read the much heralded book-Innovators Dilemna by Clayton Christensen.

    Its a brilliant,Brilliant book and talks about this very issue-How can a company which at one point of a time,reinvent itself when the Technology cycle changes.

    The author clearly points out in the Book there are only Three strategies available to the company.

    One)Keep up with whatever is current and is in the In-thing(where Dell has clearly failed so far).

    Two)Fade into obsolence(which Dell does'nt want to)

    and

    Three)Keep yourself at the Top of your game in the area in which you excel-Even if it means being Numero Uno in a Shrinking market;its not really a bad strategy to keep Revenues Flat in a shrinking market.

    For instance look at AOL's Dial up business.

     

     

  15. bolaji ojo
    January 21, 2013

    Ashish, I am one of the few people who think Apple has a crazy business model with regard to the iPhone. The company can and should have more offerings in the smartphone market but it has stuck with the iPhone. The strategy worked, works but what happens next as rivals pull ahead?

    Dell, on the other hand, has offerings in various markets and may be better able to remain buoyant when things turn rough. That rough period is now. Dell needs more than multiple offerings to win in this market. It needs outstanding products and great designs. It doesn't have it. Neither Dell nor Apple have the strategy to remain on top of the markets on a consistent basis.

    Of course, the perception is that Dell is the troubled company whereas Apple is riding high. I beg to differ. Dell was riding high too at one time and didn't heed warnings. Apple is in the same position now. I hope it heeds warnings some of us are offering now.

  16. SunitaT
    January 22, 2013

    I don't think Dell's Days are over.

    @tech2people, I totally agree with you. Dell is trying to re-invent itself which will be good for Dell in long run.  We have all seen how Apple reinvented itself from Desktop manufacturer to iPod/iPhone manufacturer.

  17. itguyphil
    January 22, 2013

    They definitely have gone on the path to re-energize themselves. Via the acquisition route. They have scooped up a bunch of good companies with a suite of interesting portfolios to branch out and i prove their brand.

  18. Ashu001
    January 22, 2013

    Tirlapur,

    Thanks for re-confirming what I had suspected for a long-time!

    Dell has more fans out there than most people know and care!!!

  19. Ashu001
    January 22, 2013

    Bolaji,

    Basically what you are saying is that you want Dell to behave more like Apple and Apple to behave more like Dell!!!

    Lol!!!

    I am sure many Apple fanatics will cringe at this categorisation!

     

    But Yeah,I don't dispute your basic arguments against both Apple and Dell maintaining Long-term domination of the Tech Space.

    In Apple's case I have serious doubts that they will heed the warnings most of us here are issuing against them maintaining their Long-term Dominance.

     

    Here's a different Game to play-

    What will Happen if Apple utilizes its gigantic Cash Pile to buy out Dell?

    Will it cause nothing but Acquisition Indigestion?

     

    Regards

    Ashish.

  20. Ashu001
    January 22, 2013

    Guys,

    I highly recommend you do some research and reading on Dell's Advanced Threat centre and Secureworks websites.

     

    http://go.secureworks.com/advancedthreats

     

    http://www.secureworks.com/incident_response/incident_response_planning/

    http://www.secureworks.com/resources/whitepapers-shortcut/

    http://www.sonicwall.com/securityportal/

    https://www.brighttalk.com/webcast/288/64009

     

    Phenomenal,Just Phenomenal Research.

    They have now assembled an awesome Security Suite in place to Challenge IBM effectively in this space.

    Dell is going nowhere but Up now!!!

     

    Regards

    Ashish.

  21. bolaji ojo
    January 22, 2013

    Ashish, Best practices are not the preserve of any particular company. If Apple can learn from Dell, it should. And, if Dell can learn from Apple, it should. Right now, Apple acts like it can't learn from anyone whereas Dell acts like it doesn't know what it needs to learn.

    By the way, Apple would be crazy to buy Dell — that would be the conclusion of investment analysts. I don't think Apple would buy Dell but I think Apple can get into some of the enterprise business Dell is involved in today.

    You also noted perhaps one of the deficiencies at Apple. The company is becoming more and more a consumer electronics business, neglecting the enterprise market.

  22. Ashu001
    January 22, 2013

    Bolaji,

    Actually its that Apple does not care what the Enterprise Market needs and wants.

    They simply cater towards their Fan-Base(which to be fair has expanded by Leaps and Bounds over the last decade or so).

    With the Folks from Cupertino its always been a case of My Way or the Highway!!!

    Regards

    Ashish.

  23. Mr. Roques
    January 29, 2013

    Dell bought Wyse and has continued to offer thin client solutions (for schools, mostly). Normal PCs will continue to sell but they cant forget the new tendencies ir the market will forget them.

  24. Mr. Roques
    January 29, 2013

    Well, who wouldn't want to be IBM? The leader in a high-margin, high-profit industry. But how did the migrate to it? Well, they first failed at making PCs, no?

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