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TMCNet:  Not so direct from Dell [Financial Express (India)]

[February 11, 2013]

Not so direct from Dell [Financial Express (India)]

(Financial Express (India) Via Acquire Media NewsEdge) Ten to fifteen years can be a very long time, especially when it comes to the world of technology. A firm can go off the radar in that time, or spring back to life after a lengthy dormant spell.


In 1997, while addressing a Gartner symposium Michael Dell had said Apple should be shut down and money given back to its shareholders. Fifteen years hence, Dell must be wondering why he said that because the statement has come right back to haunt him. Steve Jobs made the biggest ever comeback in corporate history, handing Dell a big lesson about the risks of taking potshots prematurely. Today the shoe is on the other foot. Michael is taking the PC maker private for $24.4 billion in one of the biggest ever leveraged buyouts, in an attempt to escape Wall Street's attention and revive his slowing outfit.

Every decade throws up an exciting new enterprise, and existing powerhouses get under the shade for a while. Very few companies have the power to last multiple generations. IBM is a rare, great example of survival. It's a text book on how to survive by being ahead of the curve and not letting competition come close. But not every firm is an IBM. Dell is not-at least not by available evidence at present.

It's easy for people outside the ring fence to say, let's innovate and keep steaming ahead. This is not something that is easily achievable. Companies like HP and Dell are today facing the brunt of not innovating at the right time and not being able to keep track of consumer preferences, the way Apple did it. Or Google for that matter. Sure, it's not like Dell or HP never innovated. Online ordering of customised PCs was something that Dell came up with. That was a great success. Dell was on the top of the PC pecking order along with HP for a long time. But then all good things have to come to an end. It generally happens around the time when the fear of maintaining leadership position takes over. That's when one stops thinking about fresh ideas. As a result, Dell never stumbled upon the next Big Idea.

Dell desperately needs a bit of IBM. It wants to expand its software and services offerings significantly after seeing how IBM has been successful in doing so, after selling off its PC division. Even after Michael Dell returned to the company in 2007 as CEO, he could not salvage the firm's fortunes. The fact is PCs are still central to Dell's plans. They form a substantially huge chunk of its revenues. It is not known what kind of strategy will the new private entity adopt. The company will have to eventually reduce its dependency on PCs, but that has to be carefully thought through and executed. For that to happen, it has to come up with a great new product. It will also involve making huge investments. The good thing is Dell will have more time now to think about innovation, while being able to get away from stock market pressures with new private status. The fact that it had to take an extreme move like this (i.e go private) is an indication of the decay in the PC market. Dell, which began its journey in a college dormitory room, is third behind HP and Lenovo today as far as market share is concerned.

The big question is whether going private will really help Dell in the long run. Previously too companies have been taken private, without much success. So that's not a recipe for better tidings. However, its earnings were still solid when last declared. It garnered revenues of $43 billion in the first three quarters, with a net profit of over $2 billion. So there's plenty of financial muscle there. It has to squeeze more out of its corporate computing business where margins are higher and needs to penetrate deeper into the cloud computing game.

Copyright 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com Credit: Darlington Jose Hector (c) 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com

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