Feeds

Dell directors foresee unremitting brutality in PC market

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

Build a business case: developing custom apps

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. ®

The Essential Guide to IT Transformation

More from The Register

next story
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
Chips are down at Broadcom: Thousands of workers laid off
Cellphone baseband device biz shuttered
Feel free to BONK on the TUBE, says Transport for London
Plus: Almost NOBODY uses pay-by-bonk on buses - Visa
Amazon says Hachette should lower ebook prices, pay authors more
Oh yeah ... and a 30% cut for Amazon to seal the deal
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.