Business

Dell has its work cut out for it

Taking Dell private is a bold move, but won't ensure success. If you can't recognize opportunities and execute properly as a public company, buying yourself shelter from investors only takes you so far.

The bigger challenge will be rejiggering the corporate culture and core processes to make more innovation possible.

Why take this $24 billion gamble, which saddles the company with $15 billion in new debt?

The last five years have been hard on many computer shops. IBM's 2012 sales of $104.5 billion, for example, were just a hair above the 2008 mark. The intervening years saw a high of $107 billion and a low of $96 billion.

HP fared better in that period, using acquisitions to grow top line sales, but the fruits of that labor have left it with a confused strategy and a loss of $12 billion in 2012.Stagnated sales could be one reason. Since fiscal 2008 revenue has flatlined: $61.1 billion, $61.1 billion, $52.9 billion, $61.5 billion, and $62 billion. The company's fiscal 2013 ends later this month and analysts expect sales to dip to $56.7 billion.

To reignite growth, Dell has been trying to diversify its products and services, an effort it kicked off a few years ago to become an "end-to-end technology solutions company."

PC dependency

While Dell has managed to reduce its dependency on the cutthroat PC business, "Desktops & Mobility" still accounted for a whopping 54% of sales in the first nine months of fiscal year 2013 (ended Nov. 2). The good news: Revenue for servers and networking grew 9% in this period, driven by the acquisitions of Force 10 Networks, SonicWall, and other recent additions.

The question is whether Dell can scale these other core sectors fast enough. Revenue for "Mobility" (notebooks, mobile workstations, and tablets) fell 18% for the first nine months of FY13 (mostly due to lower unit sales), and "Desktop" revenue was off 6% for the period (mostly from falling prices).

By way of comparison, Apple racked up more in iPad sales last quarter than Dell mustered in Desktop sales over the first three quarters of FY13—$10.6 billion in iPads vs. Dell's $9.8 billion worth of PCs.

Add it up, and it looks like the company has its work cut out for it. No wonder Michael Dell wants to make the sausage without demanding shareholders looking over his shoulder. The question is, can Dell muster enough cultural and process change to capitalize on the newfound freedom?

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