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

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Winning Scottish independence will be even harder than before - but it may be the only choice

Independence campaigners will have to find answers on borders, currency and more. 

The Brexit mutiny has taken not just the UK economy and its relationship with Europe into uncharted waters. it has also imperilled the union between Scotland and England. From Sir John Major to the First Minister, both Unionists and Nationalists had warned of it. The outcome, though, has made this certain. The Leave vote in England and Wales contrasted with an overwhelming Remain vote north of the border.

That every region in Scotland voted to stay In was quite remarkable. Historically, fishing and industrial communities have blamed the European Union for their woes. That antagonism was probably reflected in lower turnout - an abstention rather than a rejection. 

The talk now is of a second referendum on independence. This is understandable given the current mood. Opinion polls in the Sunday Times and Sunday Post showed a Yes vote now at 52 per cent and 59 per cent respectively. Moreover, anecdotal evidence suggests even arch No vote campaigners, from JK Rowling to the Daily Record, are considering the option.

The First Minister was therefore correct to say that a second referendum is now “back on the table”. Her core supporters expects no less. However, as with the economy and Europe, the constitutional relationship between Scotland and England is now in uncharted seas. Potential support for independence may be higher, but the challenges are arguably bigger than before. The difficulties are practical, political and geographic.

Of course the Little Englanders likely to take the helm may choose a velvet divorce. However, given their desire for the return of the Glories of Britannia that’s improbable. They’re as likely to wish to see Caledonia depart, as cede Gibraltar to Spain, even though that territory voted even more overwhelmingly In.

Ticking the legal boxes

Practically, there’s the obstacle of obtaining a legal and binding referendum. The past vote was based on the Edinburgh Agreement and legislation in Westminster and Holyrood. The First Minister has indicated the democratic arguments of the rights of the Scots. However, that’s unlikely to hold much sway. A right-wing centralist Spanish government has been willing to face down demands for autonomy in Catalonia. Would the newly-emboldened Great Britain be any different?

There are no doubt ways in which democratic public support can be sought. The Scottish Government may win backing in Holyrood from the Greens. However, consent for such action would need to be obtained from the Presiding Officer and the Lord Advocate, both of whom have a key role in legislation. These office holders have changed since the first referendum, where they were both more sympathetic and the legal basis clearer. 

Getting the EU on side

The political hurdles are, also, greater this time than before. Previously the arguments were over how and when Scotland could join the EU, although all accepted ultimately she could remain or become a member. This time the demand is that Scotland should remain and the rest of the UK can depart. But will that be possible? The political earthquake that erupted south of the Border has set tectonic plates shifting, not just in the British isles but across the European continent. The fear that a Brexit would empower dark forces in the EU may come to pass. Will the EU that the UK is about to leave be there for an independent Scotland to join? We cannot know, whatever European Commission President Jean-Claude Juncker may be saying at the moment. The First Minister is right to start engaging with Europe directly. But events such as elections in France and the Netherlands are outwith her control. 

Moreover, currency was the Achilles heel in the last referendum, and hasn’t yet been addressed. George Osborne was adamant in his rejection of a currency union. The options this time round, whether a separate Scottish currency or joining the euro, have yet to be properly explored. A worsened financial situation in the 27 remaining EU members hampers the latter and the former remains politically problematic. 

The problem of borders

Geography is also an obstacle  that will be even harder to address now than before. Scotland can change its constitution, but it cannot alter its location on a shared island. In 2014, the independence argument was simply about changing the political union. Other unions, whether monarchy or social, would remain untouched. The island would remain seamless, without border posts. An independent Scotland, whether in or out of the EU, would almost certainly have to face these issues. That is a significant change from before, and the effect on public opinion unknown.

The risk that's worth it

Ultimately, the bar for a Yes vote may be higher, but the Scots may still be prepared to jump it. As with Ireland in 1920, facing any risk may be better than remaining in the British realm. Boris Johnson as Prime Minister would certainly encourage that. 

David Cameron's lack of sensitivity after the independence referendum fuelled the Scottish National Party surge. But perhaps this time, the new Government will be magnanimous towards Scotland and move to federalism. The Nordic Union offers an example to be explored. Left-wing commentators have called for a progressive alliance to remove the Tories and offer a multi-option referendum on Scotland’s constitution. But that is dependent on SNP and Labour being prepared to work together, and win the debate in England and Wales.

So, Indy Ref The Sequel is on the table. It won’t be the same as the first, and it will be more challenging. But, if there is no plausible alternative, Scots may consider it the only option.

Kenny MacAskill served as a Scottish National MSP between 2007 and 2016, and as Cabinet Secretary for Justice between 2007 and 2014.