Dell goes private; what it means for the enterprise

by Sohini Bagchi    Feb 06, 2013

Dell

Computer maker Dell’s decision to opt out of the stock market in a $24.4 billion deal is not only the largest deal of its kind in recent times, but also a landmark decision in the history of technology. The transaction includes a $2 billion loan from Microsoft as well as debt financing from Bank of America, Merrill Lynch, Barclays and RBC Capital Markets.

According to company officials, the move by Dell to go private could help them become more flexible and robust in terms of technology offering. They believe that the company can now focus on the solutions-centric business for enterprise customers by leveraging the several acquisitions it has made over the past couple of years.

Uncertainty for CIOs?
Even though Dell’s decision to go private can be considered strategic for the company, Carter Lusher, Chief IT analyst at Ovum, believes that it can create some uncertainties in the CIO community. He believes that Dell is in the midst of a wrenching transition from a supplier of commodity hardware, mainly traditional PCs, to being a supplier of enterprise-grade IT infrastructure. As a result of this, the company is likely to face some risks during this transition as enterprises and public sector organizations are expected to cut back on their purchases due to the uncertainty.

According to Carter, the implication of going private is that Dell is planning radical changes to its strategy and product roadmap. While the company might come out of this transition stronger with a product lineup that better meets the needs of businesses and public sector organizations, there will be uncertainty as to what products and services stay, get strengthened, or get eliminated,” says Lusher.

Analysts believe that effective communication to stakeholders and customers about its strategy and product roadmap can be a critical success factor to get through the transition. However, this may not be as simple as it sounds.

Many in the industry believe that one of the biggest challenges for Dell is that of its brand identity as a “PC company,” as a result of which there will be questions about Dell’s product strategy and the impact on the company’s customers going foward.

Strategies to remain intact
Dell officials have however assured that the company’s strategy to develop end-to-end IT products for the enterprise will likely remain intact. Dell in recent years has been striving to transform itself from a low-margin PC vendor to an enterprise IT provider offering servers, storage, networking, software and services. In the last 5 years, the PC maker acquired nearly 25 companies to consolidate its enterprise product portfolio, but has had problem in bundling its new offerings and also in formulating a consistent product strategy.

According to a company source, with the recent move, Dell can now offer its products in a more diligent manner, without being answerable to investors and that Dell has carefully chalked out its strategies for the enterprise market for the coming quarters. However, the official mentions that for Dell it is a matter of time before some of the adjustments take place toward its long-term goals.

There can be some significant changes in the company’s PC division, where Dell has to strongly focus on enterprise PCs and mobile devices in line with a bring-your-own-device (BYOD) strategy, according to analysts. Earlier this year, Shishir Singh, director (product marketing), Dell India had said that the company is betting big on BYOD for better sales. Analysts say this will be an important way to attract and retain enterprise customers.

Singh announced that Dell has already created a portfolio of devices that are designed to strike a balance between end user preferences and employee productivity to broaden the company’s BYOD portfolio. The combination of new Dell hardware and cloud client solutions is expected to make the technology more accessible to its consumers.

A survival strategy
Although many consider this as a strategic move, Dell’s announcement to go private also reflects the turbulent times facing the PC industry with more enterprises looking at tablets and smartphones as future options to laptops. This has shaken up the PC vendor community, including Dell’s very own rival Hewlett Packard and chip maker Intel.

With slump in its sales and shrinking margins companies like HP and Dell were anxious that they might not regain their top slots and started to venture into other businesses such as software and technology consulting – a much safer bet. The move to go private is also one of the revival strategies of the company, analysts believe.Microsoft which is investing in the deal is expected to gain better influence in the design of the devices by Dell in the emerging scenario.

Analysts say that although enterprises will be wary of Dell’s transition in the hardware, software, and services shifts and that CIOs need to understand and analyze the risk to their infrastructure in accordance to the shift, in the long run, once the “dust settles,” things may look up a lot better for Dell and its customers.