Dell sheds pressures of Wall Street for new set of pressures


The $24.4 billion leveraged buyout that Dell (NASDAQ: DELL) announced last week is widely seen as an opportunity for the company to double down on its transformation into a heavy weight in the enterprise IT arena. With an investment from private equity firm Silver Lake Partners--as well as a $2 billion loan from Microsoft (NASDAQ: MSFT)--Dell has more freedom to pursue its own course without Wall Street breathing down its neck. (Provided it can overcome opposition from unhappy shareholders, that is.)

"Dell's ambition is nothing less than offering the entire IT stack with supporting services," writes Carter Lusher, chief IT analyst at Ovum. "The implication of going private is that Dell is planning radical changes to its strategy and product roadmap."

Despite a couple dozen acquisitions to fortify its enterprise product line-up in the past five years, Dell is still seen by many as a PC maker first. With the new ownership structure, it may be able to bring a more cohesive plan to its enterprise offerings. Last year alone, Dell bought six companies, covering services modernization, enterprise security and thin clients, which InfoWorld's Ted Samson suggests may indicate a major foray into the cloud.

"[T]hose are the acquisitions of a company that aims to become an end-to-end provider of hardware and services for business customers large and small seeking to smoothly and securely migrate their business processes to the cloud; who are considering jettisoning PCs in favor of cloud-friendly thin clients (a la Project Ophelia); and who are struggling to get a handle on BYOD with all of its security and management headaches," Samson writes.

In the long term, Dell may very well end up with a product line more suitable to businesses, but along the way there is going to be uncertainty. The company's added debt may restrict opportunity for investment in R&D, and the shifts in hardware, software and services could disrupt current infrastructure offerings, Ovum's Lusher warns. 

Rival Hewlett-Packard (NYSE: HPQ) wasted no time piling on, issuing a press release about two hours after Dell's announcement: "Dell has a very tough road ahead," HP cautioned. "The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell's ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb."

What seems fairly certain, if the history of leveraged buyouts is any guide, is that some Dell employees and business units may be let go in the not-so-distant future, and this raises questions about future support levels.

Microsoft's role in the Dell buyout raises other questions. Clearly, Redmond has an interest in doing what it can to stop Dell from losing all focus on the Windows PC, but some observers suggest that there must be more to the story.

The investment in Dell is reminiscent of Microsoft's massive payment to Nokia in 2011, writes ZDNet's Mary Jo Foley. In the Nokia deal, Microsoft was looking for a partner to be "all in" when it came to the Windows Phone platform, Foley recalls. With its latest investment, Microsoft may be looking to keep Dell from hooking up with Linux, Chrome OS or Android. Just as the Nokia deal ignited worries about an unfair advantage, the Dell deal has sparked concern about the impact on other PC makers, but Foley isn't convinced.

"So it could be that a Microsoft tie-up with Dell won't necessarily be to the detriment of Microsoft's other OEMs," she writes. "Rather than becoming nothing but a factory for new Microsoft Surface PCs and tablets--something that some Microsoft watchers believed/feared to be the primary reason Microsoft would invest in Dell--maybe a Microsoft-backed Dell just becomes a stronger Windows OEM."

David Chernicoff suggests, in post at ZDNet, that there may be plans in the works for Dell to sell enterprise gear and services based on Microsoft Azure. "By building a flagship line of enterprise and cloud products and services that utilize Windows Azure (as well as other Microsoft enterprise focused efforts) Dell can more easily differentiate themselves in a very competitive market where the most successful vendors have an identifying strategy where they can hang their hat," he writes. "Using Microsoft Azure as the primary hook for enterprise and cloud customers can help make Dell a more significant player in the enterprise market."

No longer aiming to satisfy the quarterly earnings demands of Wall Street, Dell appears to be aiming sharply at satisfying the enterprise. Having shed one set of pressures, it will have to navigate a new set very carefully. - Caron