The Key to Dell's Success as a Private Company

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With the announcement that Michael Dell is attempting to take his namesake company private, many people are asking whether this is a good move for a company that once rode its high earnings to Wall Street success.  At the time of this writing, the question is whether the deal that has been announced will actually be allowed to go through.  Southeastern Asset Management, Dell's biggest outside investor with an 8.5 percent stake in the company, is fighting the deal believing that it (at $13.65 per share) is considerably undervalued.

Assuming that the deal does go through, what is the future for Dell? Will it regain its status as one of the go to brands or will it wither and die off with some of the other companies that have lost step with the pace of the current technological trends? The real question to ask is whether the problem with Dell is the oversight and control that comes with being a publicly traded company or whether it has simply been a large misstep by the management of Dell, including Michael Dell himself.

Generally speaking, the history of leveraged buyouts (LBO) has been a volatile option depending greatly on the individual details and the focus of the people taking over the company. If the newer management is just as inept as the original management, it doesn't really matter how good the deal looks, especially in the technical sector.

So what is the history of some of the bigger technical sector LBOs?

Alltel, once one of the largest wireless service providers was taken private in 2007 for a total deal value of 27.5 billion; almost exactly a year later, Verizon bought Alltel for 28.1 billion, not a bad short-term return. Freescale Semiconductor Inc, the maker of some of the most successful Motorola chips in the 1990s was taken private in 2006, and at the time was considered one of the worst LBO deals ever made. Freescale, after a number of hard years, is attempting to build itself back up and has since went public (in 2011) under the ticker symbol (NYSE) FSL. While the Alltel deal certainly worked out for the private investors, the Freescale deal was much less of a success (as of this writing). The real point in this is that going private can be a good and bad deal, but it greatly relies on the strategic plan of the future management.

Dell has been mostly known for its PCs. While the PC will not go extinct any time soon, companies focusing mainly on PCs will continue to see profit margins sink and will need other technologies to lead the profits. In this respect, Dell was late to the mobile phone and tablet game, both of which are quickly becoming the primary computing devices of tech-savvy individuals and companies. While it may be too late for Dell to jump in and win any significant business in these sectors, it is in their best interest to return to where they began and innovate.

With the considerable technical knowledge that exists at the top of Dell, the focus should really be turned to the next generation of devices. What will be the next thing that tech-savvy people are interested in? Instead of attempting to diversify into every market (PCs, monitors, networking equipment, etc.), Dell should clear the slate and return to specialized products. The real question is what that specialized product will be and if Dell can be the company to create it.

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Sean Wilkins

Sean Wilkins is an accomplished networking consultant who has been in the IT field for more than 20 years, working with several large enterprises. He is a writer for infoDispersion and his educational accomplishments include: a Master’s of Science in Information Technology with a focus in Network Architecture and Design, and a Master’s of Science in Organizational Management. Sean holds certifications with Cisco (CCNP/CCDP), Microsoft (MCSE) and CompTIA (A+ and Network+).