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Michael Dell Wins: Now The Hard Part

Sep 12, 2013 (10:09 AM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=240161149


After months of challenges and setbacks, Michael Dell has finally succeeded in taking his company private. Now the CEO and founder's real challenge begins: Rebuilding a company that last month reported a 72% drop in quarterly earnings.

Dell shareholders approved the deal in a special vote Thursday morning in Austin, Texas. The deal is expected to close by the end of Dell's fiscal third quarter.

"This is a great outcome for our customers and the company," said Michael Dell during a conference call with analysts and reporters that followed the vote. He said the company would accelerate its effort to become a leading provider of end-to-end enterprise technology, and promised that Dell would "return to its roots" with an "entrepreneurial spirit."

Michael Dell announced in February that he had partnered with investment firm Silver Lake Partners to buy out the company. The effort provoked vocal opposition from influential investors, notably Carl Icahn, who said the CEO's offer shortchanged investors, and who repeatedly questioned Dell's leadership. Michael Dell eventually countered by increasing his buyout bid to nearly $25 billion, or $13.75 per share with a dividend of $0.13. The move set the final stage for the CEO's victory on Thursday. Dell's stock is down more than 40% since Michael Dell returned to lead the company in 2007.

During the conference call, Dell said the company is "on the cusp of the next technological revolution." He stated that trends in big data, mobility, security and the cloud are changing the world, just as the PC did 30 years ago, and that Dell will make these innovations simpler, more affordable and more accessible, just as the company did decades ago with computers.

[ Are PCs going the way of the landline? See Tablets To Edge PCs In Q4: IDC. ]

To do so, the CEO said Dell will extend its enterprise products through R&D and acquisitions, increase its sales coverage, add new partners to its sales channel and target emerging markets. Dell has presented similar laundry lists of objectives in the past, and many of his talking points on Thursday echoed remarks he made at Dell World in December, when he declared the company had transitioned from PC maker to enterprise service provider.

The difference now is that Dell can retool the company without Wall Street's watchful eye. The CEO alluded to as much Thursday, noting that as a private company, Dell can pursue investments without scrutiny.

Michael Dell also said the company will continue to invest in tablets and PCs, both of which have contributed heavily to the company's recent woes.

"The PC business has come unglued faster than they thought it would and Dell needs PC revenue to invest in [its] business transformation," IDC analyst Matt Eastwood told InformationWeek in May, when Dell announced financial earnings that were even lower than analysts' muted forecasts.

On Thursday, Dell offered few specifics regarding how it will reboot its PC business, but CFO Brian Gladden pointed out that the company, which remains the world's third biggest PC maker, has actually increased its PC market share in recent quarters. The company did so, however, largely by sacrificing profit margins to boost sales. Given that analysts expect PC sales to continue declining for the next year, Dell's "gains" are, in a sense, as much a part of the problem as the solution. That Dell's tablet business relies so much on Windows 8's shaky foundation is another area of concern.

Gladden said it's "hard" to pinpoint how much of Dell's future revenue will come from devices, as opposed to enterprise sales and services. "We see the value of a broad portfolio, and will make investments to play a leadership role in the PC market, and in end-user computing devices," he said. He stated the company will invest in areas that are growing, adding that recently, the market for enterprise services has grown faster than the market for PCs.

To build its enterprise portfolio, Dell has spent billions over the last several years to acquire various companies. Its portfolio now includes promising hyperscale and converged infrastructure products for data centers, as well as assets in security, storage and more. At Dell World, some customers even compared the company to IBM.

But Dell's new focus puts it in competition with larger and more established companies, including not only IBM, but also Microsoft, Hewlett Packard and Cisco. During the call, Michael Dell and Gladden both argued that Dell's relationship with customers will help it to differentiate its products and services. Both stressed, however, that the company's new persona will take time to develop.

Michael Dell also said the company will pursue both "organic and inorganic" investments. The company's buying spree dried up as the buyout drama played out, but once Dell is officially private, it's likely the company will announce new acquisitions to accelerate its enterprise goals.

Learn more about enterprise IT by attending the Interop conference track on the Business of IT in New York from Sept. 30 to Oct. 4.