Why Dell must suffer in private

Third biggest PC maker is still a PC maker.

So Michael Dell and a private equity group have bought Dell and taken it private. It’s all Steve Jobs’ fault. If that turtleneck-wearing maverick hadn’t believed in tablet computers, people would still be buying PCs, running Microsoft Windows – and still be waiting the best part of a minute for the things to turn on. But Jobs did believe in the iPad, and so did the 15 million customers who bought the first generation.

Since then tablets from Apple, Samsung, Amazon, Acer and others have simply exploded. Analyst firm Gartner recently confirmed what we all knew already: that tablets are eating into PC sales. The firm said in the fourth quarter of last year, global PC shipments declined 4.9 per cent, while in EMEA shipments declined even faster - 9.6 per cent.

But that’s not the only problem for Dell. Its core PC business also faced very stiff competition from market leader HP and number two, the Chinese manufacturer Lenovo, which several years ago bought the rights to IBM’s ThinkPad brand. In the fourth quarter, HP retained its market lead but sales were flat year on year. Lenovo grew sales 8.2 per cent; Dell lost 2 per cent. Indeed among the top five vendors, only Lenovo saw any growth.

To be losing market share in a market that is itself in decline is bad news, very bad news. Competition from rivals, tablets and even smartphones has also brought price pressure in a market that already had relatively slim margins. The other problem is that while Dell did come up with some of its own inventions, it left most of the PC innovation to Microsoft and Intel – Dell’s biggest early innovation was in the brutal efficiency of its supply chain. These days, it turns out the likes of Lenovo and Acer can play that game too. Meanwhile Dell’s own tablets, such as the Streak, have largely failed to capture consumers’ imagination. Add it all up and in its latest quarter Dell saw profits slide 47 per cent.

Shareholders saw the cracks appearing and Dell’s stock started to slide. There’s serious concern that the issues are neither temporary nor easy to fix. Michael Dell has talked about the idea of taking Dell private for a few years now, and after several weeks that saw leaks that it was about to come to pass, yesterday the deal was announced.

In a $24.4 bn leveraged buyout, Michael Dell becomes the largest individual shareholder, with a 14 per cent stake. The other big investor is private equity firm Silver Lake Partners, but there’s also a $2 billion loan from Microsoft, which has an obvious interest in seeing Dell survive. Other investors include MSD Capital, Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

At least one analyst thinks there’s a flaw in the plan, because it needs shareholder approval. While the price being offered for the shares is a 25% premium on Dell's closing share price of $10.88 on January 11, just before the rumours of the buy-out began, it's still way off the $17.61 that the shares were trading for a year ago, and offers little premium over Dell's more recent stock price. "I think the key question here is will shareholders approve this deal, because there is practically no premium where the stock is trading," Sterne Agee analyst Shaw Wu said.
But assuming they do go for the deal, what next for Dell? Rival HP has already issued a statement saying the deal creates “uncertainty” around Dell, which is probably true. What is certain is that Dell is by no means out of the woods. Having see the writing on the wall it’s been in transition for some time now, trying to become less reliant on the PC side of the business by moving more into software and services, as well as higher-end computer technology like servers, networking and data storage equipment.

Dell has been on an acquisition spree to make it look more like an IBM, HP or Oracle. In 2009 it bought Perot systems for IT services; in 2010 Compellent for storage; in 2011 SecureWorks for security and Force10 for data centre networking. Last year it bought Wyse for thin clients, SonicWALL and Appsure for security and Quest for systems management. That’s fine and dandy, but having not previously been particularly acquisitive, it has some integration challenges to overcome first.

So what will Dell do differently, assuming shareholders approve its plan? According to CFO Brian Gladden, not a lot. He told Reuters that it will continue along the same path, but that, “Under a new private company structure, we will have time and flexibility to really pursue and realise the end-to-end solutions strategy. We will be able to pursue organic and inorganic investment and we won't have the scrutiny and limitations associated with operating as a public company."

But if Dell really wants to look like an HP, Oracle or IBM, it’s got a lot more acquisitions yet to do. That may be harder now that it can’t easily buy companies with its shares (although its backers do have deep pockets). Ultimately, it remains to be seen whether this deal marks the beginning of the end for Dell.

Apart from a lack of shareholder scrutiny, it’s not clear exactly what Dell gains here. If it really believes in its turnaround strategy, its stock would have recovered as its results improved. According to Gladden, “We are generally very, very encouraged by the future here." It’s that one word, "generally", that should leave everyone under no illusion that Dell still has some fundamental challenges to overcome.

Photograph: Getty Images

Jason Stamper is editor of Computer Business Review

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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