Will Dell be better off as a private company?
Dell’s fiscal third-quarter net income dropped over 47 percent from the same quarter a year ago to $475 million and its revenue dropped 11 percent to $13.7 billion.
The PC and server maker still managed to generate $1.3 billion in cash flow from its operations during the period ended Nov. 2. That brought its total cash and investments to $14.2 billion.
But the question now is– would Dell be better off as a private company? Dell still remains one of the world’s largest PC makers, though its market share has been falling lately to Asian rivals such as Lenovo.
And the Texas company is also trying to emulate IBM by expanding in business technology like servers, storage appliances and services, but the operations haven’t been showing results fast enough for Wall Street investors.
And in high-growth markets such as smartphones and tablets, Dell’s efforts could accurately be described as disappointing, to say the least, pointing toward an alarming future of shrinking sales in low-growth or no-growth markets, not just in the U.S. but abroad as well.
Dell is now thinking that the best way to turn itself around could very well be by going back to a privately-held company. Michael Dell and investment firm Silver Lake Partners said today that they’re partnering on a $24.4 billion leveraged buyout, and Microsoft is even investing a $2 billion loan to help fund the deal.
While going private may unsettle some Dell customers right now, it could simply be the right thing to do. By becoming private, the company can do what it needs to without disclosing every move to the SEC, the regulators and public shareholders.
It can grow its enterprise business organically and determine what it’s going to do in the mobile segment. And most importantly, it can do all that without being pressured, leaving the company ample time to focus on its stategy and where it wants to go moving forward.
“I would describe Michael Dell’s last few years as in transition but lacking focus,” Forrester analyst David Johnson said. “As a private company, Dell could be more nimble and able to better focus on the organization itself and grow its business a lot faster.”
Dell played a key role in the PC revolution, but its traditional products are being left behind in the mobile segment. For Dell, that has meant shifting its focus to providing data center technology instead of simply selling PCs. And it has had some success there.
While overall fiscal third-quarter results were dismal, revenue in Dell’s server and networking business climbed eleven percent from the previous year to $2.32 billion.
However, building an enterprise business and attracting new business customers to replace consumers takes a lot of time. Dell has been expanding its offerings by making acquisitions, such as IT services provider Perot Systems and storage maker Compellent Systems. But pulling all that together into one neat package, like IBM Global Services did a few years back, will take time. A lot of time.
And going private buys the company all the time it needs. Dell apparently will stay the course with its current plans to diversify away from PCs, based on comments Chief Financial Officer Brian Gladden made to several publications today.
Additionally, Dell’s closer relationship with Microsoft through the software giant’s loan could end up being mutually beneficial. Microsoft has been trying to more tightly control the entire device making process. It not only builds its own tablets now but also has started exerting more say over its partners’ products.
An even closer relationship between Microsoft and Dell could result in devices with better integration between hardware and their operating systems in consumer devices. And it also could ensure that Microsoft could benefit of a much a stronger partner for its enterprise business, something that the company is eager with.
Of course, nothing is always perfect in this world and there are a few risks with going private. Instead of quarterly check-ins with investors, Silver Lake could grow frustrated and demand faster improvements. And just because Dell doesn’t have to answer to public shareholders doesn’t mean its backers won’t expect returns on their investments.
Additionally, customers may be hesitant to acquire more Dell products because they’re afraid — rightly or wrongly — that Dell won’t continue to support what they bought.
“While the company might come out of this transition stronger with a product lineup that better meets the needs of businesses and public sector organizations, there will be uncertainty as to what products and services stay, get strengthened, or get eliminated,” said Carter Lusher, chief IT analyst at Ovum.
And even if Dell has more time and less scrutiny, the overall tech environment still remains competitive. Very competitive in fact. IBM won’t be waiting for Dell to figure out its strategy, and neither will HP, Dell’s two main competitors in the global server market.
More than anything, Dell needs to start innovating, whether it’s in servers, mobile devices or enterprise offerings. It’s not enough anymore to simply build me-too products. Innovation and R&D is key to success today.
In other IT news
Oracle said today that it’s rolling out some of its solutions as service clouds, with capacity-on-demand (CoD) pricing, based on its various engineered systems configurations.
Financial services operations have stringent and significantly higher capital requirements since 2008′s financial meltdown. Today, every single dollar counts and any shift from the capital expense of the ledger to the operating expenses is welcomed, says Juan Loaiza, senior vice president of systems technology at Oracle.
And many companies in other industry segments are equally keen to conserve cash for rainy days or acquisitions, and are therefore very cautious of big capital investments in information technology, at least if they can avoid it, that is.
That’s why Oracle is taking a trip back to the tail-end of the dot-com boom and rolling out a new capacity-on-demand pricing program for its ‘engineered systems’ coupled with a monthly cloud pricing program that allows users to enjoy Oracle gear installed in their very own data center while also enjoying economics that are similar to what Oracle will eventually provide as raw infrastructure services out on the Cloud.
Oracle offers platform cloud services for running Java applications, middleware, and its eponymous database as a service out on the Oracle Cloud, and also sells Fusion applications running in SaaS mode, but has not yet offered raw and virtual servers and storage appliances.
Oracle announced it was going to do infrastructure cloud services in October 2012, but it has not put the raw compute capacity into preview yet. Raw storage is in tech preview, however.