Feeds

Dell directors foresee unremitting brutality in PC market

PC-led business as appealing as cold sick to Mickey D and the gang

Security for virtualized datacentres

The global PC business is in a woeful state, and Dell founder, chairman, and CEO Michael Dell thinks the best way to put his eponymous company back on top is give it reconstructive surgery away from the prying eyes of the public stock market.

In a 274-page proxy filing with the SEC on Friday, information trickled out about Mickey D's motivation for taking his own company private – in short, he doesn't want to be buffeted by the whims of the stock market while walking his company across the tightrope that leads from being a consumer-led, low-margin, high-volume PC seller to being an enterprise-led, high-margin services organization.

Dell voiced these concerns at a meeting on December 6, 2012, in which he told his board that going private would be the best thing for the company, according to the proxy.

He planned to extend Dell's enterprise software and service (ESS) capabilities through acquisitions and R&D, hire tons of salespeople, expand in emerging markets, and invest further in the PC and tablet business.

"Mr. Dell stated his belief that such initiatives, if undertaken as a public company, would be poorly received by the stock market because they would reduce near-term profitability, raise operating expenses and capital expenditures, and involve significant risk," the proxy states.

The ambitious plans will take "three to five years and entail ongoing execution risk," Dell's CFO Brian Gladden told the board. Making the jump could also weaken earnings for "two or more years," he said.

Dell – the company and the man – wants to move away from PCs because making money in the global PC market is about as easy as selling tap water in a rainstorm, according to the report.

Michael Dell and allies Silver Lake Partners are battling with Icahn Enterprises and Blackstone Group as to who can offer the most simoleons to shareholders to take over the company.

The proxy gives a detailed behind-the-scenes look at the thinking behind the deal, and outlines why Dell's management believes going private could be the best decision.

In a section of the report under the heading "Reasons for the Merger" prepared by the Dell Special Committee, four independent directors of the company went through the challenges facing the PC market. These are:

  • rapidly declining margins as demand goes from higher-margin kit to low-cost and low-margin products, especially in emerging markets
  • major competition from high-volume manufacturers
  • a lengthening of the PC replacement cycle
  • the "uncertain adoption of the Windows 8 operating system"
  • slowdowns in enterprises upgrading to Windows 7
  • growing interest in tablets, which Dell sells only in limited quantities
  • growing interest in smartphones, which Dell doesn't sell
  • an uncertain outlook for global information-technology spending generally

The uncertain state of PCs even scared off two anonymous private-equity firms going by the names Sponsor A and Sponsor B that had originally been part of the process, according to the filing.

Dell is not the first and nor (we suspect) will it be the last company to have trouble finding a rudder to negotiate the choppy PC market: Acer has seen its 2012 sales slip 9.6 per cent year-on-year, IDC has predicted that the PC market for 2013 will fall 1.3 per cent year-on-year on top of the 3.7 per cent drop that came in 2012 to 2011, and HP's chief Meg "Iron Lady" Whitman has stressed her commitment to sexy laptops even though that division saw an 8 per cent decline in the most recent quarter, but believes a turnaround for the troubled company won't come till 2016.

Meanwhile, IBM – which got out of personal computers by selling off its ThinkPad line to Lenovo in 2005 – is doing consistently well thanks to the company's conversion to services and software over the past decade. ®

Security for virtualized datacentres

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
Apple CEO Tim Cook: TV is TERRIBLE and stuck in the 1970s
The iKing thinks telly is far too fiddly and ugly – basically, iTunes
Apple Pay is a tidy payday for Apple with 0.15% cut, sources say
Cupertino slurps 15 cents from every $100 purchase
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Huawei ditches new Windows Phone mobe plans, blames poor sales
Giganto mobe firm slams door shut on Microsoft. OH DEAR
Forget silly privacy worries - help biometrics firms make MILLIONS
Beancounter reckons dabs-scanning tech is the next big moneypit
Microsoft's Office Delve wants work to be more like being on Facebook
Office Graph, social features for Office 365 going public
prev story

Whitepapers

Providing a secure and efficient Helpdesk
A single remote control platform for user support is be key to providing an efficient helpdesk. Retain full control over the way in which screen and keystroke data is transmitted.
Top 5 reasons to deploy VMware with Tegile
Data demand and the rise of virtualization is challenging IT teams to deliver storage performance, scalability and capacity that can keep up, while maximizing efficiency.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.
Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.