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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Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war