Dell's decision to go private (and Microsoft's $2B investment) are big news
in the tech world today, but there's precious little in the way of hard evidence for why Michael Dell decided to buy back the company he founded as a college student back in 1984. The Microsoft angle has gotten a lot of press, but it's not
the primary driver of the deal.
In a $24 billion deal, two billion is only 8.3% of the total. It didn't buy Microsoft
a seat on the board or governance rights. The obvious reason for Microsoft to invest in Dell is for product manufacturing; Dell could easily handle Redmond's Surface
volume. It's entirely possible that a deal like this is in the works, but Microsoft's Surface isn't exactly flying off store shelves. Redmond has very good reason not to further antagonize its other OEM partners and a serious realignment between MS and Dell could bring antitrust watchdogs knocking.
The Wall Street Journal argues that Michael Dell made this move out of frustration with the company's recent performance and the diminishing value of his legacy. Taking the company private gives him control -- and freedom from the myopic, short-term focus of Wall Street.
How HP's Disaster Led To Dell Going Private
On August 19 2011, HP CEO Léo Apotheker announced that the company would cancel its WebOS-based products and was considering spinning off its PC business into an independent unit. The result? HP
stock dropped 25%. Many analysts, including myself, castigated the announcement as a terrible idea. 17 months later, my opinion hasn't changed on that.
It's worth noting, however, that Apotheker didn't announce that HP was unilaterally dumping the PC business. What he actually said was this:
"...our board has authorized us to explore strategic alternatives for PSG. We intend to evaluate a range of options that may include, among others, a separation of PSG from HP through a spinoff or other transaction... We anticipate that we will take 12 to 18 months to complete this process."
"This process" refers to investigating all the potential options for PSG -- not 12-18 months to finish the spin-off. Apotheker clearly had the support of the board -- until they fired him a month later. The message was clear: We brought you in to make radical changes to the company, until talking
about those changes got us punished. Now, you're history.
Dell faces many of the same challenges HP does. The HP debacle made it obvious that Wall Street wasn't open to the idea of radical change from PC manufacturers, even if such change was necessary for the company to survive. Solution? Take the company private. The real asset Dell is buying is the ability to consider radical departures from the status quo without being crucified for it the following morning.
Communication Still Key
Michael Dell clearly has some ideas about how he wants to refocus the company; Dell signed off on $5B in acquisitions in the past 12 months, and $13B in the past few years. All the major acquisitions have been enterprise companies; he's clearly preparing the company to take on HP and IBM in lucrative segments of their own markets.
While it may not have the same requirements to shareholders now, Dell still needs to explain how it plans to reinvigorate its brands, leverage its new partnership with Microsoft, and invest in businesses. There's a lot of interesting work being done around Facebook's Open Compute Project in the enterprise server market and Dell has a great deal of expertise when it comes to managing supply-side costs.
Personally, I think Dell would do well to create a high-end PC brand (or invest more effectively in XPS) over the long term. That means sticking with such designs and continually improving them, even if first-gen sales don't meet internal targets. When Dell built Adamo back in 2010, it had an opportunity to create a luxury PC brand that could've competed with the Macbook Air. Early reviews were lukewarm at best, and Dell opted to kill the project instead.
It's easy to forget that the first MacBook Air didn't set the world on fire. Performance was mediocre, prices were sky-high, and most reviewers only recommended it if you really
needed an ultra-thin laptop and had access to a DVD drive on a different system. Adamo
could've evolved into an entirely different system by now, if Dell had kept with the project.
Whatever Michael Dell decides to do, the projects he signs off on need to be ideas that the company sticks with. Post-Apotheker, HP has continued flailing and it's only hurt the company further. There are a number of places where Dell could establish itself as an innovative manufacturer with strong products and services, but bouncing from idea to idea (or acquisition to acquisition) poisons customer confidence.