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Dell buyout hints at painful changes ahead

Thu Feb 07 2013, 16:10

Michael Dell will not have missed or failed to appreciate what happened to Leo Apotheker when he tried to instigate major changes in HP and offload its PC business. While Michael Dell might not want to offload or shut down Dell's PC business yet, Apotheker's fate must have served as a instructive example of shareholder power.

By going private, Michael Dell also doesn't have the pressure to deliver quarterly financial results. But most importantly he has a board and external partners who, one has to assume, know how he intends to turn the company around including the tough decisions that no doubt will have to be made if Dell is to continue being a major IT equipment vendor.

In the short term Dell could stop the rot by remembering it is still very much a consumer IT firm and that money can be made by selling consumer hardware. After all, Apple, Lenovo and Samsung haven't done too badly in the last five years. One could argue that Apple has managed to penetrate the enterprise without even offering any enterprise hardware or software, thanks to the bring your own device trend, though at the moment it is hard to imagine anyone choosing to take a Dell laptop into the office instead of a Macbook, if given the choice.

However in the long term its plan to become a one-stop enterprise shop will require more than just acquisitions but rather a coherent strategy that looks at hardware, software and services to create the vendor lock-in it seems to crave.

As for Microsoft's involvement in the Dell deal, the obvious conclusion to draw is that the software firm that recently took on hardware vendors with its Surface tablet wants to get deeper into the hardware business. Ironically that seems to be the exact opposite of what Dell wants to do and Microsoft's statement claiming it is simply a passive investor is perhaps closer to the truth.

Microsoft has made passive investments before, most notably its investment in Apple. Though some argue that was to appease antitrust authorities back in the late 1990s, Microsoft did very little with its stake in the company, perhaps too little given the shape it is in now in comparison to Apple.

Microsoft's $2bn loan gives it access to information, the buying habits of consumers and businesses that purchase Dell's products, and although it hasn't been disclosed, it is highly likely that Microsoft gets a seat at the top table when it comes to major decisions. Dell will continue to sell Windows hardware just like every other PC hardware vendor because that is what customers want. Microsoft will learn a bit more about how to run an efficient PC supply chain, and perhaps if Michael Dell does eventually want to offload the consumer PC business, Microsoft could provide Dell's board with a soft landing.

Michael Dell now has a firmer control over his firm and a licence to make the changes he thinks will take the company forward. The beauty of a private company is that outsiders can largely be kept in the dark and only find out once a year whether the changes are paying off rather than every three months. Michael Dell has effectively bought nine extra months of grace. µ


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