What’s next for a private Dell?

In another sign of the post-PC world’s arrival, Dell, once the world’s largest computer maker and worth more than $100 billion, is selling itself for $24.4 billion and going private. Here’s a roundup of key points and questions:

The Round Rock, Texas-based PC maker had taken steps recently to shift with the times — tablets are said to be closer to outselling PCs, which are in a continued slump — by focusing more on hardware and software services. Some say Dell wants to become more like IBM, which sold off its PC business to Lenovo in a deal completed in 2005 and remade itself to something akin to a “technology visionary”— associated with “Jeopardy” champion Watson and Smarter Planet technology, as we mentioned on GMSV last year when IBM’s stock was surging and first hit $200. But some point out that IBM achieved its transformation as a public company. And Bloomberg says today that in enterprise Dell also has to compete with companies such as Oracle and Cisco Systems, not just IBM. Dell probably will want to go shopping. But it will be laden with debt.

Still, Dell will no longer be subject to the pressures of Wall Street. (Its stock has lost half its value since 2007, Bloomberg also points out.) CEO Michael Dell, who founded the company armed with $1,000 and the 1984-perfect idea of a direct-to-consumer model, had been said to be thinking of taking Dell private for at least a couple of years. The company is so synonymous with PCs, Michael Dell reportedly expressed concern that it could not head in a new direction while still public.

Michael Dell will retain majority ownership and have control of the company, with Silver Lake Partners as an investor and Microsoft extending a loan. One big question is how much time Menlo Park-based Silver Lake, a private equity firm, will give Dell before it demands a return on its investment. Along those lines, public equity seems better for companies with a long-term vision, writes Felix Salmon for Reuters. Except, Salmon says, Dell is coming cheap: “Silver Lake is paying less than 10 times earnings for the second-biggest PC manufacturer in the U.S., and the third-biggest in the world.” Dell still has substantial sales and profit, and “this can be seen as a once-in-a-generation opportunity combining cheap debt with low valuations and enormous upside potential if they get it right.”

So what is Dell supposed to get right, exactly? One key question is whether it will stay in the PC business. Hewlett-Packard flirted with the idea of divesting its PC division, but that idea quickly flamed out. (Today, Palo Alto-based HP, which also is in the services businesses, said in a statement it intends to take advantage of Dell’s “period of uncertainty and transition,” Steve Johnson writes on SiliconBeat.) Still, Microsoft’s involvement in the deal suggests a continued PC presence. “Maybe a Microsoft-backed Dell just becomes a stronger Windows OEM,” writes Mary Jo Foley for ZDNet. Also, as mentioned above, it needs to succeed in the services businesses, where other rivals include Amazon and Google, in the cloud. And another commonly mentioned question in all the coverage of this move: What about mobile — will Dell go there?



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  • ALB

    MS should provide exclusive license to Dell for Surface, and Dell should attack the corporate tablet market with Surface where Apple is already getting a tremendous foothold. But MS and Dell will have to figure out how to make the maintenance of a Surface/Tablet implementation as low as IPad already is. IPad doesn’t need an IT organization to support its apps for users. MS has to get to that place fast.

  • RedRum

    Wake me up when they come out with a tablet comparable to gaming PC’s. Right now they are about 4 years behind.

  • Markus Unread

    No matter how much Wall Street pundits rant about going private, it’s the only way to apply strong leadership and make real changes. Changes that are nearly impossible when you have to cater to the mood swings of the Market. I want to see this succeed as a prototype for other tech companies.

  • sd

    If Michael Dell had any brilliant ideas on how to move Dell toward services, it’s hard to see how he would be able to execute them any better with less money on hand. It sounds to me like another move designed to make money for Dell, the VCs, and all the lawyers involved, and it’s not going to advance Dell in the IT market.

    As for Microsoft’s stake, they’re already emulating Google’s purchase of Motorola Mobility with their interest in Nokia. Given Nokia’s reputation for hardware and its global reach, it seems to me it would be smarter to have *them* move into the tablet space rather than expect Dell to do it. Every effort Dell has made in the mobile arena has ended up being a mere footnote. Nokia may end up as a footnote, too, but “owning” one company to make a company’s flagship products might go better than hiring a second company with a reputation only for being cheaper.