Dell directors foresee unremitting brutality in PC market
PC-led business as appealing as cold sick to Mickey D and the gang
Posted in Management, 30th March 2013 00:33 GMT
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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. ®
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COMMENTS
Re: The Tree is Dead
Indeed. I've taken the liberty of scanning in some pages from the latest Dell catalog that I think many of you will find amusing: http://imgur.com/a/taplN . The first page is to show you that it is indeed from a recent catalog (no joke / photoshopping) for 2013; the second page is to show you what Dell (the company itself) says about its own machines, and what each particular sub-brand "means"; the third page, in particular the Dell Precision M6700, complete with baseline specs and price, is to show you what is terribly wrong with this company, and possibly with many of the larger OEMs in general.
For those who cannot be troubled for a laugh on par with some of the BOFH's older material, the price / specs are so terrible, that given the choice between buying a half dozen tablets and wiring them up with some esoteric version of linux, or buying this laptop, I might prefer the former. Since I am past the age where spending my weekends recompiling the kernel to get sound working, that should tell you something. The PC industry isn't being tanked because PCs themselves are obsolete; it's because the people who have been running the industry for the past 5 years have done such an outlandishly terrible job that competitors with completely different form factors are actually getting a leg up on them. They've become like GM, Ford, and Chrysler of old, refusing to innovate, letting Apple do all the work, and failing to improve on their products; now they run around wondering why their secure monopoly, like when the Japanese busted open the American market, is disappearing.
Seriously, Dell, 2 GB of RAM, for a top of the line laptop, running Windows 7? What did you do, fire everyone with any tech experience? Did you run a market analysis that said 'people like machines with 2GB of RAM, like their Windows XP machines?' I can see why Michael wants his company back; it has his name on it, and the people running are destroying it.
Re: The Tree is Dead
Without trying to put to fine a point of it, my experience with two leading companie has been like this
Dell:-
Helllloooooo, my name isss andddrreewww, (Is it bollocks, you can't even pronounce it! Your pissing me off by lying to me before i've said a single word) how can elp you this morning? (it's mid afternoon)
I have a dead hard drive and I need a replacement.
Is light on computer? Maybbe power iss not on?
I'm an IT Professional, the hard drive has failed and I need a replacement.
<... 45 minutes later...>
I think hard drive dead. (No, really...) I sond engiineer to raplace, ok?
I can fit the new Hard dri.... Never mind, that's fine send me an engineer to fit it.
Alternately, HP Support:-
<scottish accent>Your through to Andrew, how can I help?
I... have a dead hard drive and I need a replacement.
Ok, have you got the code from the diagnostic?
Uh, sorry didn't realise I needed one, first time i've called HP for a replacement HDD. How do I get it?
<concise directions from HP chap>
ok, running the diagnostic now. So, uh. Your in Britain?
Aye, our business support is based in the UK. *chuckle* Your used to dealing with "support" from India then?
...If you would describe indian help lines as support, yes. Oh, i've got the diagnostic code *abc-code-123*
ok, just entered that on our support system. [droll tone] apparently the hard drive is dead.[/droll tone] would you like an engineer to fit the replacement or are you happy fitting the drive?
Just the drive is fine mate.
Yeah, thought it would be. The giveaway was you telling me what the problem was as soon as I picked the phone up. Where do you want the drive sent to?
<address>
ok, i'm just going to stick you on hold and type this up, ok?
Sure.
<2 mins later>
Ok, your new drive should be with you in the morning, can I help you with anything else this afternoon?
No, it was just the HDD.
Ok, thanks for calling and have a nice day.
You too, thanks for the help.
---
Having deal with both, do you think I buy (and advise other people to buy) from Dell or HP?
More importantly to Dell's prospects, if Dell started offering services do you think that any significant number of people who have had the "pleasure" of dealing with Dell support would be happy with the prospect of buying services from Dell?
Let me see
The PC makers is building what Microsoft and Intel tell them to build and no-one is buying like they used to.
Maybe they should stop letting two geriatric corporations take all their management decisions for them and start building their own product? Be innovative, creative, and differentiate their offerings from each other?
Re: The Tree is Dead
I actually think it's a good thing being able to buy the computer with 2GB of RAM - I'd always buy the memory aftermarket for less than half the price the manufacturers charge. Same with hard drives...
That's one thing you can say about Apple. They to generally provide better quality products. It doesn't really matter that the iPhone 5 was an incremental upgrade and that the iPads are not really "magical" - what they are is decent quality and built with a bit of thought for the end user (HCI).
PC manufactures seem content with just cramming everything on it without thought of how it would be used by the end user (full keyboards with number pads squished on 15" laptops being one of my gripes).
The new Office Garage series:
