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.