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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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.