CXO

What to expect from the new, private Dell

Mary Shacklett talks about what IT departments can expect as a result of Dell transitioning from public to private.

I had been on board as an executive with a semiconductor manufacturing company for several years when we made the decision that in order to grow, we had to seek investors-and that the best way to do this was to go public. So, we went through the arduous process of finding financial partners and initiating an IPO (initial public offering). It wasn't long after that we were a publicly traded entity listed on NASDAQ.

We were fortunate that our financial partners, our board of directors and most of our shareholders understood and were experienced with the volatility of the semiconductor industry-but it still was a noticeably more scrutinizing exercise for senior executives to go through the quarterly results and question and answer session with analysts and even shareholders.

I'd be lying if I didn't acknowledge that there were days when I silently wished that we were still private.

And so Dell has now made the transition into private from public. My immediate reaction was that its research and development (R&D) would be able to open up, since it would no longer be under constant shareholder and industry scrutiny each quarter as stakeholders looked for short-term results. For corporate IT departments around the nation and the world, this would be good news-because it would mean that a major industry player would now have the ability to explore and pursue more innovative solutions that could truly solve age-old IT problems.

Dell CEO Michael Dell believes that going private will "open a new, exciting chapter for Dell" and its customers that will allow Dell to continue to focus on its long-term strategy, which requires "time, investment and patience."

This supports the premise that more R&D and new product development will be made possible under the agreement-with Mr. Dell further commenting that Dell's chief venture partner, private equity firm Silver Lake Partners, shares a common strategic vision.

But for IT and other Dell watchers, there are still areas of challenge that are bound to remain until enough time has passed under the new arrangement and results start manifesting.

Concerned about the welfare of its PC ecosystem where Dell is a major player, Microsoft also agreed to give Dell a two billion dollar loan to complete the public to private transition. Microsoft itself is on troubled ground as it struggles to redefine itself and to regain strength in the market. It will certainly depend on Dell to continue to deliver PC solutions that support Microsoft products at the same time that Dell repositions itself to focus more on cloud and the enterprise.

In the short term, it will also be important for Dell to make enough profit from its PC business so it can survive on the balance sheet while new solutions are being built. Can Dell keep the revenue stream from PCs going, at the same time that it takes on more debt?

Some industry analysts believe that Dell's S&P (Standard and Poor's) risk rating is likely to fall from a current A-minus to a BB because of this new debt.  However, Bernstein Research analyst A.M. Sacconaghi believes that the amount that Dell will pay on its debt will be less than what it has traditionally spent on stock dividends and share repurchases, and that the "debt load is manageable as long as the cash flow from PCs holds up." Thus far, PC revenues have stayed relatively stable-but it is no secret that the profit margin on PCs is also thin.

So-what do you think about if you're a CIO?

Will Dell continue to makes its name in PCs?

It is clear that the market is moving away from PCs, and that if you're going to be a major technology player with healthy R&D capabilities, you are going to have to play to the enterprise market. This likely means that Dell will pursue Cloud-based and other IT infrastructure solutions that add value to IT beyond what lands on a desktop.

How much will Microsoft influence Dell strategy?

A lot. Dell will continue to produce technologies that support Microsoft products, and IT should expect even greater synergy between the technology products and strategies of these two companies.

Do I include Dell in my long-term IT buy pans?

Even though it is now highly leveraged, Dell has a significant footprint and customer base that are too valuable to count out. More immediately important for IT, is whether changes to account relationships and servicing will come about with privatization, My guess is that IT could sell see improvements-as the company moves to a more holistic, enterprise-ready computing direction that also demands top-notch sales and support.

About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

6 comments
andrew232006
andrew232006

My guess is those margins are going to grow to cover Dell's R&D and companies whose purchasing policies lock them into buying Dell's will pay.

crossan007
crossan007

"My guess is that IT could *sell* see improvements-as the company moves to a more holistic, enterprise-ready computing direction that also demands top-notch sales and support."

dave.hamilton
dave.hamilton

Takeaway: Mary Shacklett talks about what IT departments can expect as a result of Dell transitioning from private to public. Should be from public to private at the end.

Hastidav2
Hastidav2

Innovation is key to survival in the future. PCs will become a thing of the past. With all of the SaaS offerings, it would be nice to have a "turn-key" ERP system in the cloud that would eliminate many of the hurdles that IT departments encounter once they host one or more of their systems. Another hurdle is hosted databases that can't be manipulated to the same extent as on-premise databases for BI purposes. I like the direction Dell is headed in.

greggwon
greggwon

Microsoft needs branded PCs and laptops and enterprise systems to sell in their stores. They are making a large attempt to rebrand themselves as an end to end product business. It has not been to their advantage to let all the terrible low end PCs be associated with the brand. The Driver issues the spam the malware, and many other issues have created an outright hatred of the whole Windows namesake. Microsoft is invested in Dell. Microsoft now can direct what Dell does, and you can bet your bottom dollar that there will be a joint Dell and Microsoft announcement before too long, detailing their intents. And eventually, if the windows market services the windows 8 debacle, MS will have control of Dell and be doing their own thing with a complete product cycle in the "computer" market. PC will mean "Microsoft product" instead of "multi-vendor" space.

lskong
lskong

I don't know if this applies across the globe but where I am, in a 3rd world country, Dell only sells through resellers now. We don't see how that will benefit us as end users and what really peeves me is that we have built-up a desktop and server infrastructure mostly on Dell over the past couple of years. All we got so far is additional steps and delays to our supply chain for IT equipment. Would appreciate if someone could enlighten me on what Dell is trying to do because as user, we need to see if our strategy aligns with it.

Editor's Picks