Dell – Privacy please

Dell’s mooted move to become private looks to be about peace and quiet rather than desperation.

• Dell is certainly at a cross roads but it is very far from being in dire straits.
• Last time I checked, it had some $14bn in cash and $1.3bn in positive cash flow in the last quarter meaning that there is no need to rush headlong into the first solution that presents itself.
• However, it is struggling with a business that looks to be in decline and a strategy that has been commoditised.
• Dell was the champion of logistics and manufacturing but unfortunately the Asians have caught up and this model no longer produces anything like the margins that it used to.
• Dell has been trying to fight back against this trend by diversifying into software and services but the acquisitions that it has made have done little to fill the void.
• Hence Dell finds itself in quandary.
• Its core business has become a commodity, it has failed in its strategy to become a software and services company and most worryingly the PC market is changing into a beast it does not understand.
• For years, PCs have been commoditised boxes with the value being in the CPU or the OS.
• Now, thanks to Apple, form factor is important again which combined with the advent of touch, means that in-house research and development has become relevant once again.
• Most R&D has been outsourced to the ODMs meaning that PC makers (with the exception of Samsung and Asustek) are struggling to adapt to the changing nature of the PC market.
• Hence Dell needs to take a long hard look at itself and decide:
  • What do I do about software and services?
  • Should I go back to in house R&D?
  • How do I adapt to the changes I am facing in my core market?
• Dealing with these questions requires a fundamental change at Dell and one best effected far away from the harsh reality of publically traded shares and howling commentators.
• This is why I believe that Dell is considering going private rather than any notion of it being in real trouble.
• Even for the largest private equity groups, it’s a vast transaction and re-inventing a PC maker is enough to make even the hardiest investor think twice.
• Whatever it decides to do, it had better hurry up as the two key rivals (Samsung and Asustek) are already fighting fit and are already out there with the sole intent of grabbing as much share as they can.